Chapter 22- Performance and Breach of Sales Contracts (on the UCC's side)

UCC's Good Faith Provision

"Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement" Good faith--honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade Merchants are held to higher standards of performance or duty than are nonmerchants PN: 28 states accept that good faith requires a non-merchant to behave honestly in fact and observe reasonably commercial standards of fair dealing. other 22 states and Dc, non-merchants only need to behave honestly to satisfy good faith. regardless in all states, a merchant must behave honestly and demonstrate commercial standards of fair dealing. the waivers cannot waiver or disclaim this. must always have good faith requirement. applies when performing or enforcing the contract. Ex: no lying, cheating after contract is made. bedore that doesn't matter.

Installment Contracts

A single contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately A buyer can reject an installment only if the nonconformity substantially impairs the value of the installment and cannot be cured If the buyer fails to notify the seller of the rejection and subsequently accepts a nonconforming installment, the contract is reinstated UCC significantly alters the right of the buyer to reject the entire contract if the contract requires delivery to be made in several installments

Revocation of acceptance

Acceptance of the goods precludes the buyer from exercising the right of rejection, but it does not necessarily prevent the buyer from pursuing other remedies Buyer is permitted to revoke his or her acceptance of the goods Acceptance of a lot or a commercial unit can be revoked if the nonconformity substantially impairs the value of the lot or unit and if one of the following factors is present: 1. Acceptance was based on the reasonable assumption that the nonconformity would be cured, and it has not been cured within reasonable period of time 2. the failure of the buyer to discover the nonconformity was reasonably induced by either the difficultly of discovery before acceptance or by assurances made by the seller Not effective until given notice to the seller

Acceptance

After having had a reasonable opportunity to inspect the goods, the buyer can demonstrate acceptance by: 1. Buyer indicates with words or conduct to the seller that the goods are conforming or that he or she will retain them in spite of their nonconformity- express acceptance. "I accept" 2. Buyer fails to reject the goods within a reasonable period of time- if the goods sit there for months and you didn't check them. 3. In sales contracts, the buyer will be deemed to have accepted the goods if he or she performs any act inconsistent with the seller's ownership- Ex: if supplier receives a palate of widgets, and sells them later that day the supplier "accepts" them in their performance. PN: this is the literal acceptance of the goods.

Exceptions to the Perfect Tender Rule

Agreement of the parties- can include exceptions. Cure- right to cure. when any tender is rejected because they're non-conforming and time of performance hasn't expired, so seller can cure by deadline by repair, adjust, or replace the non-conforming good. buyer has to accept the cure. cure out of time: seller may be entitled to cure even after the time to perform has passed, if seller timely made the non-conforming tender reasonably believing the buyer would accept. Substitution of carriers- perfect tender. you can put in your contract we're going to use UPS. if you can't ship UPS, (not our fault), seller may use a commercially reasonable substitute. Installment contracts- a contract that requires 2 or more lots (delivery's of goods) to be accepted and paid for separately. you can only reject tender if the non-conformity substantially impairs the value of the installment and cannot be cured. Can only reject if the non-conformity impairs the whole contract (i.e. 12 month contract). if the buyer accepts a non-conforming installment without notifying seller of notification then the contract is reinstated. commercial impracticability- Destruction of identified goods Assurance and cooperation

Destruction of Identified Goods

An unexpected event, such as fire, totally destroys goods through no fault of either party before risk passes to the buyer If the goods were identified at the time the contract was formed, the parties are excused from performance If the goods are partially destroyed, the buyer can inspect them and either treat the contract as void or accept the damaged goods with a reduction in the contract price PN: parties are excused from performance when unexpected event by no fault of either party destroys goods identified when contract was formed, before risk of damage passed to buyer.

Place of Delivery

Buyer and seller may agree that the goods will be delivered to a particular destination where the buyer will take possession If the contract does not indicate where the goods will be delivered, then the place for delivery will be one of the following: 1. Seller's place of business 2. Seller's residence, if the seller has no place of business 3. 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 PN:

Right to obtain specific performance

Buyer can obtain specific performance if the goods are unique or the remedy at law (monetary damages) is inadequate An award of damages is sufficient to place a buyer in the position she or he would have occupied if the seller had fully performed When a contract is for the purchase of a particular work of art or a similarly unique item, damages may not be sufficient

Right of Inspection

Buyer has an absolute right to inspect the goods before making payment Allows the buyer to verify that the goods tendered or delivered conform to the contract If the goods are not as ordered, the buyer has no duty to pay An opportunity for inspection is therefore a condition precedent to the right of the seller to enforce payment Buyer bears the costs of inspecting the goods but can recover the costs from the seller if the goods do not conform and are rejected PN: UCC requires that buyers are given opportunity to inspect the goods. this is a condition precedent to the sellers right to enforce payment. Inspection can take place at any reasonable time, place, or manner in light of the customs of the trade. cost of inspection is on the buyer.

Statute of limitations

Buyer must file lawsuit within four years after the breach occurs Parties can agree in their contract to reduce this period to not less than one year, but cannot extend beyond four years If a buyer has accepted nonconforming goods, that party has a reasonable time to notify the seller of the breach PN: if breach under UCC you have 4 years to sue. Can agree to reduce this. your contract can state not more than 1 year. if as a buyer you accept non-conforming goods, you must within rt tell the seller. give them chance to cure. if you don't, it bars your claim for breach.

Right to recover damages for accepted goods

Buyer who has accepted nonconforming goods may also keep the goods and recover damages Buyer must notify the seller of the breach within a reasonable time after the defect was or should have been discovered

right to replevy goods

Buyers also have the right to replevy goods Replevin is an action to recover identified goods in the hands of a party who is unlawfully withholding them Buyer can replevy goods identified to the contract if the seller has repudiated or breached the contract

Agreement of the parties

Exceptions to the perfect tender rule may be established by agreement If the parties have agreed, for instance, that defective goods or parts will not be rejected if the seller is able to repair or replace them within a reasonable period of time, the perfect tender rule does not apply

Conforming Goods

Goods that conform to the contract description in every way

Right to obtain the goods upon insolvency

If a buyer has partially or fully paid for goods that are in the possession of a seller who becomes insolvent, the buyer can obtain the goods Seller must have become insolvent within 10 days after receiving the first payment, and the goods must be identified to the contract To exercise this right, the buyer must pay the seller any unpaid balance of the purchase price

Right to Recover damages for the 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 Amount of damages equals the difference between the contract price and the market price and place of tender of the goods, plus incidental damages

Right to recover damages

If a seller repudiates the contract or fails to deliver the goods, the buyer can sue for damages For the buyer, the measure of recovery is the difference between the contract price and the market price of the goods at the time the buyer learned of the breach

Right to reject the goods

If either the goods or their tender fails to conform to the contract in any respect, the buyer can reject all of the goods or any commercial unit of the goods When rejecting the goods, the buyer may obtain cover or cancel the contract, and may seek damages just as if the seller had refused to deliver the goods

Partial Acceptance

If some of the goods delivered do not conform to the contract and the seller has failed to cure, the buyer can make partial acceptance Buyer cannot accept less than a single commercial unit--"single whole" that cannot be divided without materially impairing the character of the unit, its market value, or its use PN: buyer can make a partial acceptance. Ex: some of it was good and some of it was bad. You can't accept less than a single commercial unit. Ex: paint, can't accept less than a can of paint. or 3 tennis balls in a sleeve.

When the goods are in the possession of the seller

If the buyer breaches the contract before the goods have been delivered, the seller has the right to pursue the following remedies: 1. Cancel (rescind) the contract 2. Resell the goods and sue to recover damages 3. Sue to recover the purchase price 4. Sue to recover damages for the buyer's nonacceptance of goods

Right to cancel the contract

If the buyer breaches the contract, the seller can choose to simply cancel the contract Seller must notify the buyer of the cancellation, and at that point all remaining obligations of the seller are discharged but the buyer is not discharged from remaining obligations Seller can pursue remedies available under the UCC for breach

Exclusive Remedies

If the parties state that a remedy is exclusive, then it is the sole (only) remedy PN: Exclusive- if breach, seller gets this and buyer gets this. that's it

When the seller refuses to deliver the goods

If the seller refuses to deliver the goods to the buyer, the basic remedies available to the buyer include the right to: 1. Cancel (rescind) the contract 2. Obtain goods that have been paid for if the seller 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 goods

Right of cover

In certain circumstances, buyers can protect themselves by obtaining cover--buying substitute goods for those that were due under the contract Option available when the seller repudiates the contract or fails to deliver the goods, or when a buyer has rightfully rejected goods or revoked acceptance Buyer can recover from the seller: 1. 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 from the breach that were reasonably foreseeable at the time of contract formation

Payment

In the absence of any specific agreements, the buyer must make payment at the time and place the goods are received When a sale is made on credit, the buyer is obligated to pay according to the specified credit terms, not when the goods are received Payment can be made by any means agreed on between the parties--cash or any other method PN: if good are sold on credit buyer must pay by payment terms, not when they receive the goods. method is however the buyer can pay by the specified means in contract, but if not specified it is any reasonable means to pay.

Commercial Impracticability

Occurrences unforeseen by either party when a contract was made may make performance commercially impracticable Seller must notify the buyer as soon as practicable that there will be delay or nondelivery Does not extend to problems that could have been foreseen--such as an increase in cost resulting of inflation PN: when an occurance unforeseeable by either party at the time contract made, makes performance commercially impracticable perfect tender rule no longer applies and delay and deliver or non-devliyer is not a breach of contract as long as seller notify's buyer of the delay or non-delivery, but in the event the seller is at least able to parrtially perform, seller is obligated to fairly and reasonably allocate any remaining production, among tthos is contractually obligated to and notify buyer of the allocation which buyer is free to accept or reject. Ex: I make titanium widget, mine is blown up, seller can't get titanium, (perfect tender doesn't apply, delay is not a breach, buyer is notified, however if I can partially perform by offering the stock of what I do have), the seller must allocate the stock they have to the buyer. Now the buyer can accept or reject the order. Seller has 6 steps, but buyer can reject.

Reasonable Grounds

Once the time for performance under the contract has expired, the seller no longer has a right to cure Seller can still cure if he or she has reasonable grounds to believe that the nonconforming tender will be acceptable to the buyer

Additional Provisions Affecting Remedies

Parties to a sales contract can vary their respective rights and obligations by contractual agreement Seller can expressly provide for remedies in addition to those provided in the UCC Can change the measure of damages

Cure

Refers to the right of the seller to repair, adjust, or replace defective or nonconforming goods Seller has a right to attempt to "cure" a defect when the following are true: 1. A delivery is rejected because the goods were nonconforming 2. The time for performance has not yet expired 3. The seller provides timely notice to the buyer of the intention to cure 4. The cure can be made within the contract time for performance

Shipment Contracts

Requires or authorizes the seller to ship goods by a carrier, rather than to deliver them at a particular destination 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 If the seller does not make a reasonable contract for transportation or notify the buyer of the shipment the buyer of the shipment. The buyer can reject the goods, but only if a material loss or a significant delay results PN:

Assurance and Cooperation

Right to 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 PN: seller can demand adequate assurances, if they feel buyer isn't going to pay. this will depend on reasonable commercial grounds like you know they default on payments, have bankrupt. Duty of Cooperation: Performance of one party depends on the cooperation of the other; the other party can suspend performance without liabiilty and hold the uncooperative party in breach or proceed to perform the contract in any reasonable manner Ex: if seller doesn't cooperate with buyer then buyer is not held liable

Destination Contracts

Seller agrees to deliver conforming goods to the buyer at a particular destination Goods must be tendered at a reasonable hour an held at the buyer's disposal for a reasonable length of time Seller must also give the buyer appropriate notice and an necessary documents to enable the buyer to obtain delivery from the carrier PN: if the contract request the seller to deliver or arrange for delivery of goods, the seller must tender goods at reasonable hour,, keep for reasonable amount of time, obtain and promptly deliver title, promptly notify buyer goods available for pick up. non-carrier option: if contract doesn't designate delivery the buyer pick-up from seller's place of business. no place of business then seller's house.

Perfect Tender Rule

Seller has an obligation to ship or tender conforming goods, which the buyer is then obligated to accept and pay for according to the terms of the contract Under the common law, the seller was obligated to deliver goods that conformed with the terms of the contract in every detail Under the UCC, goods or tender of delivery fails in any respect to conform to the contract, the buyer may accept the goods, reject the entire shipment, or accept part and reject part if the goods or tender fail in any respect to conform to the contract the buyer can do: 1. buyer can accept goods 2. can reject entire shipment or accept part and reject another part

Tender of Delivery

Seller must either deliver or tender delivery of conforming goods to the buyer Occurs when the seller makes conforming goods available and gives the buyer whatever notification is reasonably necessary to enable the buyer to take delivery Must occur at a reasonable hour and in a reasonable manner PN: requires that the seller have and hold conforming goods at the disposal of the buyer and give buyer reasonable notice, unless there's an agreement otherwise seller must tender at a reasonable hour, must keep goods for a reasonable period of time, seller must tender all goods in a single delivery, unless the circumstances are that either party can rightfully request delivery in parts.

Right to withhold Delivery

Sellers can withhold delivery or discontinue performance of their obligations under sales when the buyers are in breach Seller can refuse to deliver the goods to a buyer who is insolvent (unable to pay debts as they become due) unless the buyer pays in cash

Partial Performance under commercial impracticability

Sometimes unforeseen events only partially affects the capacity of the seller to perform Seller can partially fulfill the contract but cannot tender total performance Seller is required to distribute any remaining goods or deliveries fairly and reasonably among the parties to whom it is contractually obligated to deliver the goods Buyer must receive notice of the allocation and has the right to accept or reject it PN: if it's only partially destroyed the buyer can inspect and either cancel contract or accept the damaged goods at a reduced price.

Substitution of Carriers

Sometimes, an agreed on manner of delivery becomes unavailable through no fault of either party Substitute performance is sufficient tender to the buyer and must be used Seller is required to arrange for a substitute carrier and normally is responsible for any additional shipping costs

Consequential Damages

Special damages that compensate for indirect losses resulting from a breach of contract that were reasonably foreseeable PN: limit consequential damages ( have to be forseeable damages). if we screw up no consequential damages.

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 If carrier has sufficient time to stop delivery, the goods must be held and delivered according to the instructions of the seller Seller is liable to the carrier for any additional costs incurred Seller has the right to stop delivery delivery of the goods until the time when: 1. Buyer receives the goods 2. Carrier of the bailee acknowledges the rights of the buyer in the goods (by reshipping or holding the goods for the buyer). Ex: carrier is in route, they're not going to stop just for this one delivery and return. 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. the buyer has title of the goods. PN: seller has to inform the buyer.

Repudiation May be Retracted

UCC permits the breaching party to "retract" his or her repudiation (subject to some limitations) Can be done by any method that clearly indicates the party's intent to perform Once retraction has been made, the rights of the repudiating party under the contract are reinstated No retraction if since the time of the repudiation the other party has cancelled or materially changed position or otherwise indicated that the repudiation is final

Right to recover the purchase price

Unpaid seller can bring an action tor recover the purchase price plus incidental damages If seller is unable to resell or dispose of the goods and sues for the contract price, the goods must be held for the buyer 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

Right to resell or dispose of the goods

When a buyer breaches or repudiates the contract while the seller is in possession of the goods, the seller can resell or dispose of the goods Seller can retain any profits made as a result of the sale and can hold the buyer liable for any loss Seller must give original buyer reasonable notice of the resale, unless the goods are perishable or will rapidly decline in value

Anticipatory Repudiation

When a party before the time for contract performance clearly communicates to the other party the intention not to perform--breach of contract PN: if time before performance somoen clearly communicates the inablity to perform. 1. treat repudiation as a breach and cancel contract. 2. treat it as breach and sue. 3. wait and see if they retract and perform 4. or seek adequate assurances (it's something in writing saying you'll you'll perform) in either case, the non-repudiator can suspend their own performance. if they clearly tell you they're not going to perform, then the non-repudiator can cancel contract. the repudiating party can take it back and perform, now the contract is back on. this will be before the expiration of the contract.

Right to cancel the contract

When a seller fails to make proper delivery or repudiates the contract, the buyer can cancel, or rescind, the contract Buyer is relieved of any further obligations under the contract but retains all rights to other remedies against the seller

Suspension of Performance Obligations

When anticipatory repudiation occurs, the non-breaching party has two choice of 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

When the goods are in the possession of the buyer

When the buyer breaches the contract while the goods are in his or her possession, the seller can sue Seller can recover the purchase price of the goods plus incidental damages Seller may also have a right to reclaim the goods from the buyer In a sales contract if the buyer has received the goods on credit and the seller discovers that the buyer is insolvent, the seller can demand the return of the goods Demand must be made within 10 days of the buyer's receipt of the goods PN: goods in buyers possession and seller remedy to goods. 1. seller can sue for purchase price or payments due. 2. if buyer is bankrupt (insolvent) seller can reclaim goods sold on credit. A. within 10 days of buyers receipt. B. at anytime if the buyer misrepresented solvency in writing three months prior to the delivery of goods. buyer lied(fraud) in writing 3 months before delivery. 3. if seller elects to reclaim, he is barred from seeking other remedy. can't sue for anything else. if goods are damaged it's based on jurisdiction. some authorize it some don't.

Remedies of the Seller

When the buyer is in breach, the seller has numerous remedies under the UCC Remedies available to the seller depend on the circumstances existing at the time of the breach Most pertinent considerations are which party has possession of the goods, whether the goods are in transit, and whether the buyer has rejected or accepted the goods PN: if buyer breaches. 1. goods are in sellers possession. seller can cancel the contract, withhold delivery, or seller can resell or otherwise dispose of the goods in a commercially reasonable manner. Or if no profit, hold buyer liable for deficiency. buyer would be reasonable for incidental damages. Ex: seller sells widgets for $500, then buyer has to pay remaining $500 (1000 trans) 2. if in process of production. the seller can stop making the products and sell them for salvage. 3. if seller is going to resell/dispose of them. seller has to let the buyer know. 4. withhold delivery 5. if no one wants them. sue buyer to recover purchase price of the goods. 6. seller can sue buyer to recover as damages the difference between the contract price and the market price , or sue to recover as damages lost profits. can sue for either or.

Remedies of the buyer

When the seller breaches the contract, the buyer has numerous remedies available under the UCC Remedies available to buyers depend on the circumstances existing at the time of the breach Relevant factors include whether the seller has refused to deliver conforming goods or delivered nonconforming goods PN: seller breaches by not delivering goods, or deliver something non-conforming. if seller doesn't deliver goods to buyer: 1. buyer can cancel the contract. 2. the buyer (if made partial pmt) obtain the goods by tendering (offering the money) the remaining balance. 3. if the goods are unique and money would be inadequate we can require seller to specifically perform. 4. we can purchase (cover by substitute performance) from a third party, and then sue for any difference. 5. if buyer can't cover, buyer can (replevey: take or demand possession. the opposite of repo) 6. sue seller to recover the difference between the contract price and market price of goods at time of breach.

When the seller delivers nonconforming goods

When the seller delivers nonconforming goods, the buyer has several remedies available under the UCC PN: delivers non-conforming goods. got red but was supposed to be green widgets. 1. Have to give reasonable notice to seller. 2. can't reject delivery (after reasonable time after receiving goods) 3. or, within reasonable time after, if I discover a non-conformity that substantially impairs the value. You can revoke acceptance. 4. the buyer can keep the goods, and sue for the difference between the value of the goods accepted and their value as promised.

When the goods are in transit

When the seller has delivered the goods to a carrier or a bailee but the buyer has not yet received them, the goods re said to be in transit PN: if seller delivered goods to carriers, but buyer hasn't received them yet, the seller can stop the carrier (if buyer is bankrupt) or if the buyer has breached (but hasn't bankrupt) the seller can stop the carrier only if the quantity shipped is at least a carload/truckload/planeload/or larger shipment. if buyer is bankrupt the seller knows he's not going to get paid, but if buyer just hasn't paid but not bankrupt (they can still pay) any small shipment has to shipped, unless it's a large load of goods.

Duties of Merchant-Buyers when goods are rejected

Merchant-buyer rightfully rejects goods, and the seller has no agent or business at the place of rejection Merchant-buyer has a good faith obligation to follow any reasonable instructions received from the seller with respect to the goods