Contracts Set 3 : Breach of Contracts and Remedies To End

Cost Avoided

"Cost avoided" is the additional cost that the non-breaching party can avoid by rightfully discontinuing performance under the contract as a result of the other party's breach.

Other Loss

"Other loss" includes consequential and incidental damages, if any.

Buyer's Remedies

1. Buyer's Remedies When the seller's time for performance arises, the seller may: i) Do nothing (breach by the seller); ii) Make a nonconforming tender (breach by the seller); or iii) Make a conforming tender (performance by the seller).

Withdrawn Refusal

A buyer's original refusal to accept may be withdrawn by a later acceptance if the seller indicates that he is holding the tender open. UCC § 2-601. However, if the buyer attempts to accept after his original rejection caused the seller to arrange for other disposition of the goods, then the buyer is liable for any ensuing damage. The buyer is liable even if the seller chooses to treat his action as acceptance rather than conversion. UCC § 2-601 cmt.2. Note that a buyer's attempts in good faith to dispose of defective goods when the seller fails to give instructions within a reasonable time are not to be regarded as an acceptance.

Consequential Damages: Causation

A defendant can defend on the ground that the losses that the plaintiff seeks to recover would have occurred even if the defendant had not breached the contract.

Expectation Damages: Partial Performance

A partially performing party can generally recover for work performed, plus expectation damages for the work not yet performed. If at the time of a breach the only remaining duties of performance are (i) those of the party in breach and (ii) for the payment of money in installments not related to one another, then breach by nonperformance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach and is a partial breach of contract only. Restatement (Second) of Contracts § 243(3).

Mitigating Damage

A party to a contract must avoid or mitigate damages to the extent possible by taking such steps as to not involve undue risk, expense, or inconvenience. The non-breaching party is held to a standard of reasonable conduct in preventing loss. a non-breaching party's failure to mitigate does not give the breaching party a right to sue the non-breaching party for such failure; it only reduces the damages that may be recovered by the non-breaching party

Prospective Inability to Perform

A party's expectations of performance may be diminished by an event that occurs after the contract was made. Under the UCC, either party can demand assurance of performance if there are reasonable grounds for insecurity about the other party's ability or willingness to perform. Once such assurances are requested, performance may be suspended until they are provided. Failure to give adequate assurances within a reasonable time, not exceeding 30 days, can be treated as repudiation. UCC § 2-609. Even then, the repudiating party can still retract his repudiation until his next performance is due, unless the other party has already materially changed his position or otherwise indicated that he considers the repudiation final. UCC § 2-611.

Benefit conferred independent of contract

A person who confers a benefit on another in the absence of any contractual relationship, such as a doctor who happens upon an accident and renders emergency medical services to a victim, may be able to recover in restitution to the extent that retention of the benefit would result in unjust enrichment of the recipient. See I.G.2. Implied-in-Law ("Quasi") Contracts, supra.

Seller's Remedies: Stoppage of Goods in Transit

A seller can stop the goods in transit because of the buyer's breach; goods can be stopped in transit only if shipped in large-sized (e.g., carload, truckload) lots. The seller cannot stop goods in transit once the: i) Buyer has received the goods; ii) Carrier or warehouseman has acknowledged the buyer's rights; iii) Goods have been reshipped by the carrier; or iv) Title has been given to or negotiated with the buyer. UCC § 2-705(1),(2). If the buyer becomes insolvent before the delivery of the goods, then the seller can stop goods in transit and refuse delivery except for cash. UCC§2?705(1). Compare buyer's breach: When a buyer is insolvent, the seller can stop goods in transit, regardless of the size of the shipment.

Nonconforming Tender: Rejection

A valid rejection requires that the buyer: i) Give notice to the seller; ii) Within a reasonable time; and iii) Before acceptance. UCC § 2-602. Upon a rightful rejection, the buyer is entitled to a return of any payments made on the goods. UCC § 2-711(3).

Anticipatory Repudiation: UCC

According to the UCC, anticipatory repudiation occurs when there has been an unequivocal refusal of the buyer or seller to perform, or when reasonable grounds for insecurity arise with respect to the performance of either party, and the other party fails to provide adequate assurances within a reasonable time, not to exceed 30 days. UCC § 2-609. The repudiation can be retracted if the other party has not canceled the contract or materially changed position. Repudiation allows the non-repudiating party to resort to any remedy given by the contract or code.

Buyer's Remedies: Cover

Alternatively, the buyer may purchase similar goods elsewhere and recover the replacement price minus the contract price. UCC § 2-712.

Exception: Liquidated Damages clause

An exception exists if the contract provides for the non-breaching party to retain the breaching party's performance (e.g., a down payment on the purchase price) as liquidated damages; restitution is not allowed if the liquidated damages are reasonable. Restatement (Second) of Contracts § 374(2).

Seller's Remedies: Pre-delivery insolvency

As a condition for the seller to reclaim goods from a buyer, the buyer must have received the goods on credit while insolvent. If the buyer becomes insolvent after delivery, then the seller may not reclaim the goods.

Prospective Inability to Perform: Commercial Standards for Merchants

Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered are determined according to commercial standards. Thus, for example, if a supplier writes to a manufacturer demanding assurances of financial solvency, and the manufacturer provides its latest audited financial statements as well as a satisfactory credit report from his banker, then that would likely constitute adequate assurances of his financial status.

Defective Performance: Sale of Goods contracts

By contrast, in contracts for the sale of goods, damages for nonconformity with the contract generally are measured by the difference between the value of the goods as warranted and the actual value of the tendered nonconforming goods. The purpose of both measures is to place the plaintiff in as good a position as if the defendant had performed the contract according to its specifications.

SOL on a Breach of Sales Contract: Modification of limitations period

By their original agreement, the parties may reduce the four-year limitations period of Article 2 to not less than one year, but they may not extend it.

Breach of Contract: Common Law

Common law: a material breach of contract (i.e., when the non-breaching party does not receive the substantial benefit of its bargain) allows the non-breaching party to withhold any promised performance and to pursue remedies for the breach, including damages. If the breach is minor (i.e., the breaching party has substantially performed), then the non-breaching party is entitled to any remedies that would apply to the nonmaterial breach. If a minor breach is accompanied by an anticipatory repudiation, then the non-breaching party may treat the breach as a material breach. The party who commits a material breach of his contract obligations cannot sue for contract damages but would ordinarily be entitled to the fair value of any benefit conferred on the non- breaching party. if a breach is minor, the non-breaching party may be able to recover damages, but that party also still must perform under the contract. If the breach is material, the non-breaching party does not need to perform.

Remedies: Damages for Breach of Contract

Compensatory damages are meant to compensate the non-breaching party for actual economic losses. The goal of compensatory damages is to put the non-breaching party in as good a position as performance would have done, plus consequential and incidental damages, if any, less possible mitigation of damages. Alternatively, the plaintiff might recover liquidated damages, reliance damages, or restitutionary relief.

Consequential Damages

Consequential damages are reasonably foreseeable losses to a nonbreaching party that go beyond expectation damages, such as loss of profits.

Specific Performance and Declaratory Judgment: Real Property

Contracts involving the transfer of an interest in real property may be enforced by an order of specific performance because every parcel of real property is considered unique.

General Expectation Formula

Damages = loss in value + other loss - cost avoided - loss avoided The "loss in value" is the expectation. The "other loss" is any consequential and incidental damages. The "cost avoided" is the additional costs that the nonbreaching party can avoid by rightfully discontinuing performance under the contract as a result of the other party's breach. "Loss avoided" is the beneficial effect of the breach due to the nonbreaching party's ability to salvage or reallocate resources that otherwise would have been devoted to performing under the contract. Loss avoided is subtracted only if the savings results from the injured party not having to perform rather than from some unrelated event. Restatement (Second) of Contracts § 347.

Consequential Damages: Foreseeability

Damages are recoverable if they were the natural and probable consequences of breach, or if they were "in the contemplation of the parties at the time the contract was made," or if they were otherwise foreseeable

Nominal Damages

Damages do not need to be alleged in a cause of action for breach. If no damages are alleged or no damages are proved, the plaintiff is still entitled to a judgment for "nominal" damages (e.g., one dollar).

Expectation Damages: Sale of Goods Contracts

Damages for failing to deliver goods are measured by the difference between the contract price and the market value of the goods (or the cost of cover).

Expectation Damages: Real Estate Contracts

Damages for failing to perform a real-estate sales contract also are measured by the difference between the contract price and the market value.

Seller's Remedies: Wrongful Rejection

If the buyer wrongfully rejects, then the seller has three alternative remedies and would also be entitled to incidental damages and lost profits. UCC § 2-703.

EXAM NOTE

EXAM NOTE: When approaching risk-of-loss problems, first ask whether the contract sets forth the risk of loss. If it does, the agreement controls. If not, ask whether there is a breach or repudiation by either party. If so, the breaching party usually bears the risk. If not, determine whether the contract is a shipment or destination contract and continue the analysis under UCC § 2-509.

Specific Performance and Declaratory Judgment: Defenses

Equitable defenses, such as laches (prejudicial delay in bringing the action) or unclean hands (when the non-breaching party is guilty of some wrongdoing in the transaction at issue) may be raised by the breaching party. A party may also wish to enter an injunction against the breaching party to enforce the contract.

Specific Performance and Declaratory Judgment: Limitations

Even if the remedy of damages is inadequate, specific performance will not be granted when the court cannot supervise enforcement. Thus, courts rarely grant specific enforcement of contracts for personal services, although they may restrain the breaching party from working for another when the contract contains a non-compete clause.

Expectation Damages

Expectation (benefit-of-the-bargain) damages are intended to put the injured party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty. If expectation damages are too speculative, the plaintiff may instead seek reliance damages (see § VIII.D. Restitution and Reliance Recoveries, below). To calculate expectation damages, compare the value of performance without the breach (what was promised) with the value of the performance with the breach (what was received).

Exception: Sale of goods--payment by default buyer

For contracts for the sale of goods, a defaulting buyer is entitled to a refund of any payments made on the contract less damages provable by the seller and either the amount to which the seller is entitled by virtue of an enforceable liquidated-damages provision or a penalty of "20 percent of the value of the total performance for which the buyer is obligated under the contract, or $500, whichever is smaller." UCC § 2-718.

Unenforceable Contract

If a contract is unenforceable due to the Statute of Frauds or is voidable due to lack of capacity, mistake, misrepresentation, duress, or undue influence, then a party is entitled to restitution of any benefit conferred on the other party by way of part performance or reliance. Similarly, a party whose duty is discharged or does not arise as a result of impracticability of performance, frustration of purpose, or the nonoccurrence of a condition is entitled to restitution of any benefit conferred on the other party by way of part performance or reliance. Restatement (Second) of Contracts §§ 375-377.

Quasi-contract: recovery by breaching party

If a plaintiff has not substantially performed and is in breach of the contract, the plaintiff is not permitted to recover under the contract. However, if the defendant has benefited from the plaintiff's performance, the plaintiff can generally recover in restitution for the benefit conferred on the defendant less the defendant's damages for the breach. In general, the breaching party's recovery is limited to a ratable portion of the contract price. Restatement (Second) of Contracts § 374(1).

Diminutive of Value ( economic waste)

If the award of expectation damages would result in economic waste, then courts may instead, at their discretion, award damages equal to diminution in value. Economic waste occurs when the amount of damages owed is disproportional to any economic benefit or utility gained as a result of the award. See Jacob & Youngs v. Kent, 129 N.E. 889 (N.Y. 1921). Diminution in value, as an alternative to the benefit-of-the-bargain measure of recovery, is subject to the discretion of the court. If the breach is willful, and only completion of the contract will give the nonbreaching party the benefit of its bargain, then a court may award expectation damages even if that award would result in economic waste.

Seller's Remedies: Delivered Goods to a Buyer who Pays with Check

If the buyer pays with a check that is subsequently dishonored, then the seller may reclaim the goods following a demand made within a reasonable time. The seller's right to reclaim is subject to the right of a good-faith purchaser. UCC §§ 2-507, 2-511(3).

Buyer's Breach

If the buyer repudiates or breaches after the goods have been identified but before the risk of loss shifts, then the risk of loss is immediately shifted to the buyer to the extent of any lack of insurance coverage by the seller.

Identified goods, no breach

If the contract deals with identified goods (e.g., a specific painting or specifically identified items of inventory), then the seller is excused if the goods are totally destroyed through no fault of the seller prior to the risk of loss being shifted to the buyer. Neither party is required to perform; neither party has breached. If the specifically identified goods are damaged but not totally destroyed, then the contract is avoided unless the buyer chooses to take the goods at a reduced price without any other claim against the seller. UCC§2?613.

Shipment Contract

If the contract does not specify the place of delivery, it is a shipment contract, and the risk of loss passes to the buyer when the seller gives possession of the goods to the carrier and makes a proper contract for their shipment. The UCC considers this the "normal" agreement involving a "normal" risk of loss. UCC § 2-509, cmt 5.

Goods to be shipped to a third party carrier

If the contract requires or authorizes the seller to ship the goods by carrier, the event necessary to shift the risk of loss is dependent upon whether the contract is a "shipment" or "destination" contract.

Destination Contract

If the contract specifies delivery at a particular location, it is a destination contract, and risk of loss passes to the buyer when the seller tenders at the place specified in the contract. Note that "F.O.B." agreements (i.e., agreements that specify the location for delivery) additionally require the seller to give notice to the buyer that the goods are with the carrier before the risk of loss shifts. See § VII.D.3.b.4.b. Shipment contract, supra.

Risk of Loss

If the parties do not otherwise agree, if goods that have not been identified are damaged or destroyed without the fault of either party to the contract, then the risk of loss is generally on the seller until the seller satisfies the contractual delivery obligations. Upon the happening of that event, the risk of loss shifts to the buyer. UCC § 2-509.

Specific Performance and Declaratory Judgment : Declaratory Judgment

If the rights and obligations of the parties under a contract are unclear, and an actual dispute exists between the parties concerning those rights and obligations, then either party may bring a declaratory-judgment action to obtain an adjudication of those rights and duties. Declaratory judgment is not available, however, to resolve moot issues or theoretical problems that have not risen to an actual dispute.

Effect of breach on contract: Seller's Breach

If the seller delivers nonconforming goods, the risk of loss remains on the seller until the buyer accepts or there is a cure. If the buyer rightfully revokes acceptance, the risk of loss shifts back to the seller to the extent of any lack of insurance coverage by the buyer.

Seller's Remedies: Wrongful Rejection/Resell the Goods

If the seller elects to resell and sue for the contract price minus the resale price, then the resale must be (i) only of goods identified in the contract and (ii) commercially reasonable. UCC § 2-706.

Defective Performance: Construction Contracts

In construction contracts, damages for defective or incomplete construction are measured by the cost of repair or completion. The general measure of damages for failing to perform a construction contract is the difference between the contract price and the cost of construction by another builder

Expectation Damages: Construction Contracts

In construction contracts, the general measure of damages for a contractor's failure to begin or to complete the building or other structure is the difference between the contract price and the cost of construction by another builder, plus compensation for delay in completion of the construction. The general measure of damages for the owner's failure to pay the contract price, in whole or in part, is the profits that the builder would have earned, plus any costs incurred by the builder, less the amount of any payments made by the owner to the contractor and any materials purchased by the contractor that are used by the contractor on another job.

Specific Performance and Declaratory Judgment: Factors Considered

In determining whether the legal remedy is adequate, the court will consider a variety of factors, including the difficulty of proving damages with reasonable certainty, hardship to the defendant, balance of the equities, practicality of enforcement, and mutuality of the agreement.

SOL on a Breach of Sales Contract: When a cause of action accrues

In general, a cause of action accrues when the breach occurs, regardless of whether the aggrieved party knows of the breach. A breach of warranty accrues when delivery is made. If a warranty expressly extends to the future performance of the goods, the cause of action will accrue when the breach is or should have been discovered by the aggrieved party.

Seller's Remedies: Lost Profits

In some circumstances, a seller cannot be made whole through resale at the contract price. This is true for volume sellers (those sellers who have an unlimited supply of the goods and who make a profit per item). Although they can resell the goods at the same price as the contract price, they have lost the opportunity to sell them in the first instance when the seller breached or repudiated. They are, therefore, entitled to those lost profits. To qualify as a "lost volume" seller, the seller needs to show only that it could have supplied both the breaching purchaser and the resale purchaser with the goods. In general, the measure of lost profit would be the list price minus the cost to the dealer or manufacturer. UCC § 2-708(2).

Nonconforming Tender: Perishable and nonperishable goods

In the absence of other instructions from the seller, the buyer may store nonperishable goods at the seller's expense, reship them to the seller, or sell them for the seller's account. If the goods are perishable and the seller has no local agent to whom they can be returned, in the absence of other instructions from the seller, the buyer is required to sell the goods on the seller's behalf. UCC § 2-603.

Incidental Damages

Incidental damages may be awarded to the non-breaching party as compensation for commercially reasonable expenses incurred as a result of the other party's breach. In the sale of goods, such damages may include the cost of inspecting, transporting, caring for, or maintaining custody over goods.

Quasi Contract : Recovery by non-breaching party

Instead of seeking to enforce a contract, a nonbreaching party may seek restitution for any benefit conferred on the breaching party by way of part performance or reliance. Restitution is available whether the breach is by nonperformance or by repudiation, but in the case of nonperformance, restitution is available only if the breach gives rise to a claim for damages for total, not partial, breach. Restatement (Second) of Contracts § 373(1).

Liquidated Damages

Liquidated damages are damages stipulated by the parties in the contract as a reasonable estimation of actual damages to be recovered in the event of a breach. When the contract contains a liquidated-damages clause, the party seeking to repudiate that clause must show that the agreed-to damage is so exorbitant as to be in the nature of a penalty.

Loss Avoided

Loss avoided" is the beneficial effect of the breach due to the nonbreaching party's ability to salvage or reallocate resources that otherwise would have been devoted to performing under the contract. Loss avoided is subtracted only if the savings results from the injured party not having to perform rather than from some unrelated event. Restatement (Second) of Contracts §347.

Loss in Value

Loss in value" is the difference between the performance that the nonbreaching party should have received under the contract and what was actually received, if anything.

Exceptions: Willful Breach

Most courts hold that a plaintiff in breach is permitted to recover in restitution only if her breach is not willful. If the breach is willful, then she cannot recover anything in restitution unless the non-breaching party has accepted or agreed to accept the substitute performance. Restatement (Second) of Contracts §374, cmt. b.

Seller's Remedies: Incidental Damages

Note that in addition to any of the remedies listed above, the seller is entitled to recover incidental damages (including storage and shipping costs). UCC § 2-710.

Breach of Contract

Once a duty to perform exists, nonperformance is a breach of contract unless the duty is discharged (by agreement, statute, inability to perform, waiver, etc.).

Punitive Damages

Punitive damages are rarely available in contract actions. Some states allow punitive damages to punish fraud, for violation of a fiduciary duty, for acts of bad faith, or for deterrence. Under the Restatement (Second) of Contracts § 355, punitive damages are not recoverable "unless the conduct constituting the breach is also a tort for which punitive damages [can be recovered]."

Reliance Damages

Reliance damages may be recovered if a non-breaching party incurs expenses in reasonable reliance upon the promise that the other party would perform. Unlike with a restitutionary recovery, with reliance damages, there is no requirement that the defendant benefit from the plaintiff's expenditures. The injured party can choose to pursue reliance damages instead of expectation damages, but a party cannot recover both reliance and expectation damages. Reliance damages are mitigated by any losses that the plaintiff would have sustained if the contract had been performed. In addition, reliance damages generally may not exceed the full contract price. Restatement (Second) of Contracts § 349.

Retraction of Repudiation

Repudiation may be retracted until such time as the promisee (i) acts in reliance on the repudiation, (ii) signifies acceptance of the repudiation, or (iii)commences an action for breach of contract. Notice of the retraction must be sufficient enough to allow for the performance of the promisee's obligations.

Specific Performance and Declaratory Judgment: UCC

Specific performance may be granted to the buyer when the goods are rare or unique, or in other circumstances, such as for breach of a requirements contract when there is not another convenient supplier. UCC § 2-716.

Title and Good-Faith Purchasers: Entrusting Provisions

The UCC provides that entrustment of goods by the owner to one who sells goods of that kind gives the transferee the power to convey good title to a buyer in the ordinary course. A "buyer in the ordinary course" is one who in good faith and without knowledge of a third party's ownership rights or security interest buys goods from someone selling goods of that kind. UCC § 2-403. "Entrusting" includes any delivery and acquiescence in possession regardless of any condition expressed between the parties and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods has been larcenous. UCC § 2-403(3).

Prospective Inability to Perform: Acceptance

The acceptance of any improper delivery or payment does not preclude an aggrieved party from demanding adequate assurance of future performance.

Replevlin: Buyer's Inability to Cover

The buyer can also obtain identified, undelivered goods from the seller if: i) The buyer is unable to effect cover; ii) The circumstances reasonably indicate that such effect will be unavailing; or iii) The goods have been shipped under reservation, and satisfaction of the security interest in the goods has been made or tendered.

Buyer's Remedies: Specific Performance

The buyer may demand specific performance for unique goods. In addition, specific performance may be had in other proper circumstances. An inability to cover is strong evidence of such circumstances. The court may grant specific performance on terms and conditions that the court deems just. UCC §2-716(1).

Buyer's Remedies: Damages

The buyer may recover the market price minus the contract price. The market price is the price that existed at the time of the breach at the place where tender was to occur under the contract. UCC § 2-713.

Nonconforming Tender: Retain possession

The buyer must retain possession of rejected goods for a reasonable time to allow for the seller to reclaim them. UCC § 2-602(2).

Buyer's insurable interest

The buyer of goods obtains an insurable interest in the goods as soon as the goods are identified in the contract. Identification can be made at any time by the parties' explicit agreement. In the absence of such an agreement, identification occurs when the contract is made if it is for the sale of goods already existing and identified; for future goods, identification occurs when the goods are shipped, marked, or otherwise designated by the seller as the goods to which the contract refers. UCC § 2-501(1).

Anticipatory Repudiation: Unilateral Contracts

The doctrine of anticipatory repudiation does not apply to unilateral contracts.

Anticipatory Repudiation: Repudiation of Promise

The doctrine of anticipatory repudiation is applicable when a promisor repudiates a promise before the time for performance is due. The repudiation must be clear and unequivocal (as opposed to mere insecurity) and may be by acts or words.

Expectation Damages: Contract to lend Money

The measure of damages for breach of a contract to lend money is the additional cost of obtaining a loan from another lender (e.g., the difference in cost over time between the interest rates of the original loan and the subsequent loan).

Consequential Damages: UCC- breach of warranty

The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. UCC § 2-714(2). Repair costs often are used to determine this difference in value, but when repairs fail to restore the goods to their value as warranted, a further adjustment is required.

Conversion

The remedy for conversion is the fair market value of the goods at the time of the conversion

Nonconforming Tender: Remedies

The same remedies are available to the buyer after rejection as if no tender was made by the seller, i.e., damages (including incidental and consequential damages, unless properly limited or excluded), cover, specific performance, or replevin. Need for notice: A failure to give notice of the breach to the seller within a reasonable time after the buyer discovers or should have discovered the breach will preclude the buyer from any remedies.

Seller's Remedies: Wrongful Rejection/ Recover the Price

The seller can recover the price after rejection only if the goods are not sellable in the seller's ordinary course of business. UCC § 2-709. The price is the price as defined in the contract or, if no price is defined in the contract, a reasonable price. The seller can retain deposits paid by the buyer up to the amount stated in a liquidated-damages clause, or, in the absence of such a provision, 20 percent of the value of performance or $500, whichever is less.

Right to Cure

The seller has a right to cure a defective tender if: i) The time for performance under the contract has not yet elapsed; or ii) The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity. The seller must give notice of the intent to cure and make a new tender of conforming goods. If the seller had reasonable grounds to believe that the buyer would accept despite the nonconformity, the tender must be made within a reasonable time. Once cured, the tender is considered proper and valid. UCC § 2-508.

Seller's Insurable Interest in Goods

The seller of goods retains an insurable interest in the goods as long as the seller retains title to the goods or has a security interest in them. Unless the contract specifies otherwise, the title passes from the seller to the buyer when the seller completes his delivery obligations. At that point, the seller's insurable interest ceases unless the seller retains a security interest in the goods. When the seller alone identifies the goods, the seller may substitute other goods for those identified until default, insolvency, or notification to the buyer that the identification is final. UCC §§ 2-401; 2-501(2).

Seller's Remedies: Wrongful Rejection/Collect Damages

The seller would ordinarily be entitled to the contract price minus the market price at the time and place for tender, together with any incidental damages, less any expenses saved as a result of the buyer's breach. UCC § 2-708(1). If that measure does not put the seller in as good a position as performance would have done, then the measure of damages will be the profit (including reasonable overhead) that the seller would have made from full performance by the buyer, together with any incidental damages, less any payments received or the proceeds of a resale of the goods. UCC § 2-708(2).

Liquidated Damages: Enforceability

There is no fixed rule applicable to all liquidated-damages provisions, and each is evaluated on its own facts and circumstances. To validate a liquidated-damages clause, the following three-prong test must be met: i) The parties intended to agree in advance to the settlement of damages that might arise from the breach; ii) The amount of liquidated damages was reasonable at the time of contracting, bearing some relation to the damages that might be sustained; and iii) Actual damages would be uncertain in amount and difficult to prove. If the liquidated damages are disproportionate to the actual damages, then the clause will not be enforced, and recovery will be limited to the actual damages proven.

Consequential Damages: Reasonable Certainty

To recover damages, a plaintiff must prove the dollar amount of the damages with reasonable certainty. Courts are hesitant to award damages for lost profits, as they are difficult to prove. When lost profits are considered too speculative, such as with a new venture, courts often limit a party's recovery to reliance damages (i.e., reasonable expenditures made in connection with the contract).

SOL on a Breach of Sales Contract: Period of Limitations

Under Article 2, an action for breach of any sales contract must be commenced within four years after the cause of action accrues.

Nonconforming Tender

Under the UCC, if either the tender or the goods are nonconforming, then the buyer has the right to accept or reject all or part of the goods. UCC § 2-601. The buyer has the right to inspect the goods before deciding whether to accept or reject. Payment does not constitute acceptance if there is no right of inspection before payment (e.g., C.O.D., C.I.F., or C & F contracts). UCC§2?513.

Acceptance

Under the UCC, the buyer accepts goods by: i) Expressly stating acceptance; ii) Using the goods; or iii) Failing to reject the goods The buyer can revoke acceptance (which amounts to rejection) if acceptance was with a reasonable expectation that the seller would cure and the seller did not cure or if the defect was hidden. The revocation must occur within a reasonable time after the nonconformity or defect was or should have been discovered, and notice must be given to the seller. UCC §2-608.

Seller's Remedies: Right to price upon acceptance

Under the UCC, the price is due after the goods are physically delivered to the buyer and the buyer has an opportunity to inspect, unless the contract provides otherwise. If the buyer refuses to pay the price, the seller may sue for the price set forth in the contract. If the contract omits a price term, then the UCC supplies a reasonable price at the time for delivery. If the contract provides that the parties will agree to a price in the future and they do not so agree, then the UCC would impose a reasonable price. UCC § 2-305.

Breach of Contract UCC

Under the UCC, the seller generally must strictly perform all obligations under the contract or be in breach. The doctrine of material breach applies only in the context of installment contracts or when the parties so provide in their contract.

All other shipping cases

Unless the parties agree otherwise, in other cases (e.g., the buyer picks up the goods from the seller or the seller delivers the goods to the buyer), risk of loss passes to the buyer upon the taking of physical possession if the seller is a merchant; otherwise, risk passes on tender of delivery.

Anticipatory Repudiation: Non-breaching Party's Options

Upon repudiation, the promisee can treat the repudiation as a breach or ignore it and demand performance. If the repudiation is ignored, then continued performance by the promisee must be suspended if the performance would increase the damages of the promisor. In a situation in which the date of performance has not passed and the only performance left is payment, the aggrieved party must wait until performance is due before filing suit (to allow the potentially breaching party to change his mind and perform). In other words, in this limited situation, anticipatory breach is inapplicable; the aggrieved party must wait for actual breach before filing suit.

Restitution Recovery

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant (rather than on the harm suffered by the plaintiff). Generally, this benefit may be measured by either the reasonable value of the defendant obtaining that benefit from another source or the increase in the defendant's wealth from having received that benefit (e.g., the increase in value of property owned by the defendant). Restatement (Second) of Contracts §§ 370, 371.

Seller's Remedies : Insolvent Buyer

When an insolvent buyer receives goods on credit, and the seller learns that the buyer is insolvent, the seller may reclaim the goods, provided a demand is made within 10 days after the buyer's receipt of the goods. This 10-day limitation does not apply if the buyer has misrepresented solvency to the seller in writing within three months before delivery. Otherwise, the seller cannot base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay. In addition, this right is subordinate to the rights of a buyer in the ordinary course or other good?faith purchaser, and, if exercised, precludes all other remedies with respect to the reclaimed goods. UCC § 2-702.

Specific Performance

When damages are an inadequate remedy, the non-breaching party may pursue the equitable remedy of specific performance.

Liquidated Damages : Uncertainty of Actual Damages

When determining whether actual damages would be uncertain in amount and difficult to prove, courts look to the time of contracting, not to the time of breach. Additionally, the damages contained in a liquidated-damages clause must be for a specific amount for a specific breach; the provision may not merely serve as a threat to secure performance or as a means to punish nonperformance. Although exculpatory language in the contract stating that the liquidated-damages provision is not a penalty does not control, it should be given some weight.

Goods held by Bailee

When goods that are held by a bailee are to be transferred without being moved, the risk of loss generally passes to the buyer on the buyer's receipt of a negotiable document of title covering the goods or on acknowledgment by the bailee of the buyer's right to possession of the goods.

Replevlin: Payment by the Buyer

When the buyer has made at least partial payment for identified goods, the buyer can obtain the undelivered goods from the seller if: i) The seller becomes insolvent within 10 days of receiving the first payment from the buyer; or ii) The goods were for family, personal, or household purposes, and the seller has repudiated or failed to deliver the goods as required by the contract. To obtain the goods, the buyer must tender any unpaid portion of the price to the seller. UCC § 2-502.

Title and Good-Faith Purchasers: Voidable Title

When the true owner of goods sells them to another, but the sale is voidable because of fraud, because of lack of capacity, or because it was a cash sale and the buyer failed to pay or paid with a dishonored check, the buyer may transfer good title to a good-faith purchaser. UCC § 2-403.