Chapter 25
The goods resold can be
- a public or private sale -the goods may be sold as a unit or in parcels - The goods resold must be identified as those related to the contract, but where an anticipatory repudiation has occurred --the goods need be neither in existence nor identified to the contract before the buyer's breach
EX. Janet, in Portland, agrees to sell goods to Laura, in Minneapolis, for $7,000 C.O.D. (collect on delivery), with delivery by November 15. Janet fails to deliver. As a consequence, Laura suffers incidental damages of $1,500 and consequential damages of $1,000. That market price in Portland on November 15, the date when Laura learned of the breach. At this time and place the market price is $8,000 -In the case of nondelivery or repudiation-
---market price is determined as of the place of tender. -Because C.O.D. is a shipment contract, the place of tender would be the seller's city. Therefore, the market price must be the market price in Portland, the seller's city. Laura would recover the difference between the market price ($8,000) and the contract price ($7,000), plus incidental damages ($1,500), plus consequential damages ($1,000), minus expenses saved ($0 in this example), which equals $3,500.
EX. Janet, in Portland, agrees to sell goods to Laura, in Minneapolis, for $7,000 C.O.D. (collect on delivery), with delivery by November 15. Janet fails to deliver. As a conse- quence, Laura suffers incidental damages of $1,500 and con- sequential damages of $1,000. --If Janet had instead delivered nonconforming goods that Laura rejected--
--Then the market price would be determined at Laura's place of business in Minneapolis.
Where the contract is for the purchase of a unique item, such as a work of art, a famous racehorse, or an heirloom...
--money damages may not be an adequate remedy -In such a case, a court of equity has the discretion to order the seller specifically to deliver to the buyer the goods described in the contract upon payment of the price
Any action for breach of a sales contract must be begun within
-Four years after the cause of action has accrued. --The parties may reduce the period of limitation to not less than one year --In a sale, they may not extend the period
To Cancel the Contract (Seller)
-If the breach is of an installment contract and it substantially impairs the whole contract, the seller may cancel the entire contract
To Recover Identified Goods on the Seller's Insolvency
-Remedy of the Buyer -Buyer has right to recover from an insolvent seller the goods in which the buyer has a special property interest and for which he has paid part or all of the price -if seller become insolvent in 10 days after receiving 1st installment payment
To Recover the Price
-Remedy of the seller the seller may recover the price + incidental damages in 3 situations
To Cancel the Contract (Buyer)
-The Buyer may cancel the contract where the seller fails to make delivery or repudiates the contract, or where the buyer rightfully rejects or justifiably revokes acceptance of goods tendered or delivered to him with respect to any goods involved. - If breach concerns the whole contract, buyer may cancel the entire contract. -Buyer must give seller notice of cancellation and is excused from further performance
Buyer's Default
-deprives the seller of the rights for which he bargained the seller's remedies are triggered by the buyer's actions in 1. wrongfully rejecting or revoking acceptance of the goods 2. in failing to make payment due on or before delivery 3. or in repudiating the contract.
To Identify Goods to the Contract
-if the buyer breaches -the seller may proceed to identify (add) to the contract conforming goods in her possession or control that were not so identified at the time she learned of the breach -the seller may resell any unfinished goods that were intended to fulfill the particular contract -The seller may either complete the manufacture of unfinished goods and identify them to the contract or cease their manufacture and resell the unfinished goods for scrap or salvage value-- must exercise commercial judgment. (Add, resell, manufacture)
Cancellation
-one party's putting an end to the contract by reason of a breach by the other -The obligation of the canceling party for any future performance under the contract is discharged -if the seller has the right to cancel, she may recover damages for breach without having to tender any further performance
Purpose of the UCC
-put the aggrieved party in a position as good as the one he would have occupied, had theater party fully performed -provided its remedies be liberally administered -damages do not have to be ''calculable with mathematical precision'': -they need only be proved with ''whatever definiteness and accuracy the facts permit, but no more.'' -remedies for breach are cumulative in nature-> punitive damages are not generally available
Where the resale is public...
-such as an auction - only identified goods can be sold; except where a recognized market exists -must be made at a usual market place or market -the seller must give the buyer reasonable notice of the time and place of the resale unless the goods are perishable or threaten to decline in value speedily -potential buyer's must be given opportunity for a reasonable inspection
Where the seller justifiably withholds delivery of the goods because of the buyer's breach, and the buyer has made payments on the price...
-the buyer is entitled to restitution of the amount by which the sum of his payments exceeds the amount of liquidated damages to which the seller is entitled under the contract
If resale becomes possible, while the seller is recovering the price
-the seller may resell the goods at any time prior to the collection of the judgment, and the net proceeds of such resale must be credited to the buyer. Payment of the judgment entitles the buyer to any goods not resold
Contract for a sale of Goods Requires
-total performance at one time or part performance in stages - at any stage the parties may repudiate the contract, may become insolvent, or may breach the contract by failing to perform his obligations under it
Breach may occur
-when the goods are in the possession of the seller, in the possession of a bailee -in transit to the buyer -or in the possession of the buyer
Contractual Provisions Affecting Remedies
1. Liquidation or Limitation of Damages 2. Modification or Limitation of Remedy by Agreement
Process for seller To Stop Delivery
1. Seller must notify the carrier or other bailee soon enough for the bailee to prevent the delivery of goods 2. the carrier or bailee must hold and deliver the goods according to the directions of the seller --who is liable to the carrier or bailee for any charges or damages incurred **If a negotiable document of title has been issued for the goods, the bailee need not obey a notification until the document is provided
How is the market price determined in "To Recover Damages for Nondelivery or Repudiation"
1. The market price is to be determined either as of the place for tender OR 2. in the event that the buyer has rightfully rejected the goods or has justifiably revoked his acceptance of them, as of the place of arrival
Where the contract calls for installments, any breach of an installment that impairs the value of the whole contract will....
1. permit the seller to withhold the entire undelivered balance of the goods 2. the seller may refuse to deliver the goods except for cash, including payment for all goods previously delivered under the contract
The Seller's right to stop delivery CEASES when
1. the buyer received the goods 2. the bailee of the goods, except a carrier, acknowledges to the buyer that he holds them for the buyer 3. the carrier acknowledges to the buyer that he holds them for the buyer by reshipment or as warehouseman 4. a negotiable document of title covering the goods is negotiated to the buyer
EX. Supreme Machine Co., a manufacturer, contracts to sell Allied Sales, Inc., a dealer in used machinery, a used machine that Allied plans to resell. When Supreme repudiates and Allied is unable to obtain a similar machine elsewhere..
Allied's damages include the net profit that it would have made on resale of the machine because seller had reason to know of the reselling of goods
EX. Ace Motors, Inc., sells a pickup truck to Brenda, a con- sumer. The contract of sale excludes liability for all conse- quential damages. The next day, the truck explodes, causing Brenda serious personal injury.
Brenda would recover for her personal injuries unless Ace could prove that the exclu- sion of consequential damages was not unconscionable.
EX. Floyd agrees to sell goods to Beverly for a contract price of $8,000 due on delivery. Beverly wrongfully rejects the goods and refuses to pay Floyd any- thing. Floyd resells the goods in strict compliance with the Code for $6,000, incurring incidental damages for sales commissions of $500 but saving $200 in transportation costs.
Floyd would recover from Beverly the difference between the contract price ($8,000) and the resale price ($6,000), plus incidental damages ($500), minus expenses saved ($200), which equals $2,300. Example of "To Resell the Goods and Recover Damages" -Remedy of the seller
EX. Green, an automobile dealer, enters into a contract to sell a large, fuel-inefficient luxury car to Holland for $22,000. The price of gasoline increases 20 percent, and Holland repudiates. The market value of the car is still $22,000, but because Green cannot sell as many cars as he can obtain, his sales volume has decreased by one as a result of Holland's breach .
Green would be permitted to recover the profits he lost on the sale to Holland (computed as the contract price minus what the car cost Green, plus an allocation of overhead), plus any incidental damages. Lost Profit Ex.
EX. terling Cabinetry Company contracts to build and install shelves and cabinets for an office building being constructed by Baron Construction Company. The contract price is $120,000, and the contract provides that Sterling would be liable for $100 per day for every day's delay beyond the completion date specified in the contract. The stipulated sum of $100 per day is reasonable and com- mensurate with the anticipated loss.
It is enforceable as liquidated damages. Liquidation or limitation of damages --If, instead, the sum stipulated had been $5,000 per day, it would be unreasonably large and therefore would be void as a penalty.
EX. Joan in Seattle agrees to sell goods to Nelson in Chicago for $20,000 F.O.B. (''free on board'') Chicago, with delivery by June 15. Nelson wrongfully rejects the goods. The market price of the goods on June 15 in Chicago is $15,000. Joan incurred $1,000 in incidental expenses while saving $500 in expenses.
Joan, would recover from Nelson the difference between the contract price ($20,000) and the market price ($15,000), plus incidental damages ($1,000), minus expenses saved ($500), which equals $5,500. --The market price would be ascertained as of June 15 in Chicago because F.O.B. Chicago is a destination contract in which the place of tender would be Chicago. TO RECOVER DAMAGES FOR NONACCEPTANCE OR REPUDIATION Example
To Recover Damages for Breach in Regard to Accepted Goods
Remedy of the Buyer -the buyer may recover damages resulting from a normal seller's breach -in the case of breach of warranty,such recovery is the difference between the value the goods would have had if they had been as warranted and the value of the nonconforming goods that have been accepted--unless special circumstances show proximate damages of a different amount
To Sue for Specific Performance
Remedy of the Buyer the buyer may obtain specific performance where the goods are unique or in other proper circumstances
To Recover Damages for Nondelivery or Repudiation
Remedy of the Buyer --the buyer may recover the difference between the market price at the time the buyer learned of the breach and the contract price, together with any incidental and consequential damages, less expenses saved -complete alternative to Cover and is only available if the buyer has not covered
To cover
Remedy of the Buyer 1. the buyer may in good faith and without unreasonable delay proceed to purchase needed goods -make a contract to purchase such goods in substitution for those due under the contract from the seller 2. the buyer may recover the difference between the cost of cover and the contract price, plus any incidental and consequential damages, less expenses saved -- buyer is not required to obtain cover, and his failure to do so does not bar him from any other remedy the Code provides --may not, however, recover consequential damages that he could have prevented by cover
To Enforce a Security Interest
Remedy of the Buyer a buyer who has rightfully rejected or justifiably revoked acceptance of goods that remain in her possession -has a security interest in these goods for any payments that she has made on their price and for any expenses she has reasonably incurred
To Recover Payments Made
Remedy of the Buyer may recover for which he has paid all or part of the price
To Recover Consequential Damages
Remedy of the Buyer the buyer may recover consequential damages resulting from the seller's breach, including (1) any loss resulting from the buyer's requirements and needs of which the seller at the time of contracting had reason to know and which the buyer could not reasonably prevent by cover or otherwise (2)injury to person or property proximately resulting from any breach of warranty
To Sue for Replevin
Remedy of the Buyer the buyer may recover goods identified to the contract if (1)the buyer is unable to obtain cover or (2)the goods have been shipped under reservation of a security interest in the seller --At common law, specific performance is available only if legal remedies are inadequate.
To Recover Incidental Damages (Buyer)
Remedy of the Buyer the buyer may recover incidental damages, including any commercially reasonable expenses connected with the delay or other breach
To Withhold Delivery of the Goods
Remedy of the Seller -A seller may withhold delivery when a buyer defaults - Seller's decision to hold or discontinue performance on her side
To Recover Incidental Damages (Seller)
Remedy of the Seller incidental damages include any commercially reasonable charges, expenses, or commissions directly resulting from the breach
To Stop Delivery
Remedy of the seller 1. if the buyer is insolvent, the seller may stop any delivery 2. if the buyer repudiates or otherwise breaches, the seller may stop carload, truckload, planeload, or larger shipments.
To recover damages for Nonacceptance
Remedy of the seller -the seller may recover damages from the buyer -Market Price Differential= measured by the difference between the unpaid contract price and the market price at the time and place of tender of the goods, plus incidental damages, less expenses saved -alternative to the remedy of reselling the goods
To Resell the Goods
Remedy of the seller -the seller may resell the goods concerned or the undelivered balance of the goods - if resale is made in good faith and is commercially reasonable --may recover the difference between the contract price and the resale price, together with any incidental damages, less expenses saved -seller is not accountable to the buyer for any profit made on any resale of the goods
EX. Federal Machine Co. sells a machine to Southern Manufacturing Co., warranting its suitability for Southern's purpose. The machine is not suitable for Southern's purpose, however, and causes $10,000 in damage to Southern's property and $15,000 in personal injuries.
Southern can recover the $25,000 consequential damages in addition to any other loss suffered. Buyer Remedy of incidental damages
EX. Max agrees to sell goods to Stanley for $1,000. The value of the goods accepted is only $800; had they been as warranted, their value would have been $1,200.
Stanley's damages for breach of warranty are $400, which he may deduct from any unpaid balance due on the purchase price upon notice to Max of his intention to do so. --The contract price of the goods does not figure in this computation -the buyer is entitled to the benefit of his bargain, which is to receive goods that are as warranted
In the absence of a provision for liquidated damages,
The buyer may recover the difference between the amounts that he has paid on the price and 20 percent of the value of the total performance for which he is obligated under the contract, or $500, whichever is smaller.
EX. Nonconforming goods that are accepted may in some way damage or destroy the buyer's warehouse and its contents, or undelivered goods may have been the subject of a lucrative contract of resale,
The profits from which are now lost -the code responds to this problem by providing the buyer the opportunity to recover consequential damages to fully compensate the aggrieved buyer for losses
To Reclaim the goods upon the Buyer's insolvency
The unpaid seller may reclaim them from an insolvent buyer by demand upon the buyer within ten days after the buyer has received the goods BUT if the buyer committed fraud by misrepresenting her solvency to the seller within 3 months prior to delivery, the 10 day limitation does not apply.
EX. Janet, in Portland, agrees to sell goods to Laura, in Minneapolis, for $7,000 C.O.D. (collect on delivery), with delivery by November 15. Janet fails to deliver. As a consequence, Laura suffers incidental damages of $1,500 and con- sequential damages of $1,000. -If Janet had repudiated the contract on November 1 rather than November 15
Then the market price would be determined as of November 1.
EX. Supreme Machine Co. contracts for $10,000 to sell Capitol Manufacturing Co. a used machine to be delivered at Capitol's factory by June 1. Supreme repudiates the contract on May 1. By reasonable efforts, Capitol could buy a similar machine from United Machinery, Inc., for $11,000 in time for a June 1 delivery. Capitol fails to do so, thereby losing a $5,000 profit that it would have made from the resale of the machine.
Though Capitol can recover $1,000 from Supreme, its damages do not include the loss of the $5,000 profit. because A buyer may not recover consequential damages he could have prevented by cover
Lost Profit
To recover damages for Nonacceptance Remedy of the seller - If the difference between the contract price and the market price will not place the seller in as good a position the seller may recover the lost profit -including reasonable overhead, plus incidental damages, less expenses saved
EX. Doug, whose factory is in Oakland, agrees to sell goods to Velda, in Atlanta, for $22,000 F.O.B. Oakland. Doug fails to deliver, and Velda covers by purchasing substitute goods in Atlanta for $25,000, incurring $700 in sales commissions but suffering no other damages as a consequence of Doug's breach. Shipping costs from Oakland to Atlanta for the goods are $1,300.
Velda would recover the difference between the cost of cover ($25,000) and the contract price ($22,000), plus incidental damages ($700 in sales commissions), plus consequential damages ($0 in this example), minus expenses saved ($1,300 in shipping costs that Velda need not pay under the contract of cover), which equals $2,400.
special property interest
Where existing goods are identified to the contract of sale, the buyer acquires a special property interest in the goods. -exists even though goods are nonconforming, and buyer has the right to reject them
EX. Jonas and Sheila enter into a contract for a sale of goods for a contract price of $3,000, and Sheila, the buyer, has made a down payment of $600. Jonas delivers nonconforming goods to Sheila, who rightfully rejects them. Can Sheila cancel the contract?
Yes, Sheila may cancel the contract because she rightfully rejected the goods and recover the $600 plus whatever other damages she can prove.
Replevin
an action at law to recover from a defendant's possession specific goods that are being unlawfully withheld from the plaintiff
Modification or Limitation of Remedy by Agreement
the contract between the parties may expressly provide for remedies in addition to those in the Code, or it may limit or change the measure of damages recoverable for breach
3 Situations where the seller can recover the price+ incidental damages
(1) where the buyer has accepted the goods (2) where conforming goods have been lost or damaged after the risk of loss has passed to the buyer (3) where the goods have been identified to the contract and there is no ready market available for their resale at a reasonable price
An insolvent buyer
Equity: one who is unable to pay his debts as they become due Bankruptcy: one whose total liabilities exceed his total assets
EX.Kelly, in accordance with her agreement with Sally, prints ten thousand letterheads and envelopes with Sally's name and address on them. Sally wrongfully rejects the stationery, which Kelly is unable to resell at a reasonable price.
Kelly is entitled to recover the price plus incidental damages from Sally. Recover price example -remedy of the seller
If the seller delivers goods on credit and the buyer fails to pay the price when due, what is the seller's remedy?
The seller's sole remedy, unless the buyer is insolvent, is to sue for the unpaid price
Under article 2A, if the lessee defaults, a lessor may also recover...
compensation for any loss of or damage to the lessor's residual interest in the goods
A seller who sues for the price must...
hold for the buyer any goods identified to the contract that are still in her control
Liquidation or Limitation of Damages
in the event of a breach -the parties may specify the amount or measure of damages that may be recovered if the amount is reasonable
Repudiating
indicating an intention not to perform
Limitation of consequential damages for personal injuries resulting from breach of warranty in the sale of consumer goods
is prima facie unconscionable, whereas limitation of such damages for commercial loss is not.
Remedies
need to address: -type of breach of contract -the situation with respect to the goods Because a breach can happen at any point of the sale -UCC provides distinct remedies for the buyer and seller specific to each situation -Purpose of remedies under the code is compensation
If a buyer, after depositing $1,500 with the seller on a $10,000 contract for goods, breaches the contract and the seller withholds delivery, in the absence of a provision for liquidated damages and in the absence of the seller's establishing greater actual damages resulting from the breach...
the buyer is entitled to restitution of $1,000 ($1,500 less $500). ---If the deposit were $250 on a $500 contract, the buyer would be entitled to $150 ($250 less $100, which is 20 percent of the price)
EX. If the buyer of a racehorse who justifiably revokes acceptance because the horse does not conform to the contract will be allowed what kind of damages
the buyer will be allowed to recover as incidental damages the cost of caring for the horse from the date the horse was delivered until the buyer returns it to the seller
Seller's Default
the buyer's remedies arise where 1. the seller fails to make delivery 2. or repudiates the contract, 3. where the buyer rightfully rejects or justifiably revokes acceptance of goods tendered or delivered 4. the seller may deliver or tender goods that do not conform to the contract
In the event of a breach of warranty upon delivery,
the cause of action occurs when the breach is or should have been discovered
Once the seller identifies goods to the contract...
the seller can exercise the remedy of the resale of goods
If the seller delivers the goods on credit and the buyer received the goods on credit while insolvent, what can the seller do?
the seller may be able to reclaim the goods
Where the resale is private...
the seller must give the buyer reasonable notice of his intention to resell --negotiations or solicitations