BUS 226- Chapter 12: Performance and Breach of Sales and Lease Contracts

Partial Acceptance

- If some of the goods do not conform to the contract, and seller has failed to cure, buyer can make a partial acceptance. But buyer cannot accept less a single commercial unit.

Statements of Opinion and Value

- Only statements of fact create express warranties - Statements by seller/lessor relating to the value of goods or giving an opinion of goods do not create an express warranty

Opinions by Experts

- if the seller or lessor is an expert, and gives an opinion as an expert to a layperson, then a warranty may be created

express warranties arise when

-Goods conform to any affirmation or promise of fact the seller or lessor makes to the buyer or lessee about goods -Goods conform to any description of them -Good conform to any sample or model of the goods shown to the buyer or lessee

possible responses to repudiation

-Pursue a remedy and treat the repudiation as a final breach -Wait to see if repudiating party will decide to perform despite the avowed intention to renege

Remedies of the Seller/Lessor

-Rescinding contract -Withholding delivery of goods -Resell or dispose of the goods and sue to recover damages -Sue to recover the purchase price or lease payments due -Sue to recover damages for the buyer's nonacceptance

A Repudiation May Be Retracted

-UCC permits breaching party to 'retract' repudiation by any method that clearly indicates their intent. -However, no retraction if the nonbreaching party has materially changed their position.

basis of the bargain

-seller does not have to use the words "guarantee" or "warranty" -buyer must rely on warranty when he enters into contract

Obligations of the Buyer or Lessee

1) Payment 2) Right of inspection 3) Acceptance

Installment Contract

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

Reasonable Reliance

A reasonable per- son is more likely to rely on a written statement made in an advertisement than on a statement made orally by a salesperson.

cover

A remedy that allows the buyer or lessee, on the seller's or lessor's breach, to obtain substitute goods from another seller or lessor.

tender of delivery

A seller's or lessor's act of placing conforming goods at the disposal of the buyer or lessee and providing whatever notification is reasonably necessary to enable the buyer or lessee to take delivery.

express warranty

A seller's or lessor's oral or written promise, ancillary to an underlying sales or lease agreement, as to the quality, description, or performance of the goods being sold or leased.

implied warranty

A warranty that arises by law because of the circumstances of a sale rather than by the seller's express promise.

Implied Warranty of Merchantability

A warranty that goods being sold or leased are reasonably fit for the ordinary purpose for which they are sold or leased, are properly packaged and labeled, and are of fair quality. The warranty automatically arises in every sale or lease of goods made by a merchant who deals in goods of the kind sold or leased.

Implied Warranty of Fitness for a Particular Purpose

A warranty that goods sold or leased are fit for the particular purpose which the buyer or lessee will use the goods

Exceptions to Perfect Tender Rule

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

Replevin

An action that can be used by a buyer or lessee to recover identified goods from a third party, such as a bailee, who is wrongfully withholding them.

lien

An encumbrance on a property to satisfy a debt or protect a claim for payment of a debt.

Remedies of the Buyer or Lessee

Cancel the Contract Obtain goods paid for if seller or lessor is insolvent Sue to obtain specific performance if goods are unique or damages are an inadequate remedy Buy other goods and obtain damages from the seller Sue to obtain identified goods held by a third party Sue to obtain damages

Provisions that affect or limit remedies

Exclusive remedies Limitations on Consequential Damages Statute of Limitations

warranty disclaimers

Express warranties can be disclaimed -If a clear written disclaimer in contract with specific, unambiguous language and called to the buyer's attention Implied warranties can be disclaimed -The warranties of fitness and merchantability can be disclaimed with the words "As Is," "With All Faults" -Disclaimer of the implied warranty of merchantability: must use the word "merchantability" -Disclaimer of the implied warranty of fitness: must be in writing and conspicuous

Fitl v. Strek

Fitl bought card from Strek, put it in safe deposit box, two years later has it appraised. The card is worthless, Fitl contacts Strek. Fitl sues for his money back, wins on reasonable notice claim, that he told Strek in a reasonable time and if he had told him earlier, it wouldn't have made this any easier for Strek to mitigate his losses.

Conforming Goods

Goods that conform to contract specifications.

when goods are in the possession of buyer or lessee

If buyer or lessee breaches contract while in possession, seller or lessor can sue.

Assurance and Cooperation

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 and "suspend" further performance without liability until such assurance is received.

Warranties Implied from Prior Dealings or Trade Custom

Implied warranties can also arise as a result of course of dealing or usage of trade.

Overlapping Warranties

Occurs when two or more warranties are made in a single transaction

Remedies for Breach

Remedies under the UCC are cumulative, meaning the innocent party to a breached sales or lease contract is not limited to an exclusive remedy.

when the seller or lessor delivers nonconforming goods

Right to reject goods: buyer can reject nonconforming goods whole or in part Duties of Merchan Buyers and Lesses when Goods Are Rejected: merchant buyer or lessee has good faith obligation to follow any reasonable instructions received from the seller or lessor with respect of the goods Revocation of acceptance: acceptance precludes buyer or lessee from exercising the right of rejection, but not to pursue other remedies. Notice of revocation: Revocation of acceptance is not effective until notice is given to the seller or lessor Right to Recover Damages for Accepted Goods: Buyer or lessee who accepted nonconforming goods may keep them and recover damages caused by the breach.

Delivery via Carrier

Shipment contracts and destination contracts

Destruction of Identified Goods

Sometimes, an unexpected event, such as fire, totally destroys goods through no fault of either party before risk passes to the buyer or lessee. In such a situation, if the goods were identified at the time the contract was formed, the parties are excused from performance.

All the Way Towing, LLC v. Bucks County International, Inc.

State intermediate appellate court ruled there was a factual dispute concerning whether the tow truck conformed to the contract and remanded the case for a trial.

place of delivery

The UCC provides for the place of delivery under a contract only if the contract does not indicate the place where the buyer or lessee 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. The seller's place of business. 2. The seller's residence, if the seller has no business location [UCC 2-308(a)]. 3. The location of the goods, if both parties know at the time of contracting that the goods are located somewhere other than the seller's business [UCC 2-308(b)].

Right to Cure (UCC)

The seller has the right to cure defective tender if a delivery is rejected because of nonconforming goods, the time for performance has not yet expired, the seller or lessor provides timely notice to the buyer or lessee of the intention to cure, and the cure can be made within the contract time for performance.

commercial impracticability and partial performance

Unforeseen event only partially affects the capacity of the seller or lessor to perform. Complete performance is impossible, partial isn't.

Substitution of Carriers

When the agreed manner of delivery proves impracticable or unavailable through no fault of either party, (1) the seller/lessor may, at his own expense, use a commercially reasonable substitute, (2) the use of which will constitute sufficient tender.

merchantable food

food that is fit to eat

Warranties of Title

good title, no liens, no infringements

Merchantable Goods

goods must be reasonably fit for the ordinary purposes for which such goods are used

Commercial Impracticability

occurrences unforeseen by either party when a contract was made may make performance commercially impracticable

Anticipatory Repudiation

one party gives notice of refusal to perform

Lemon Laws

provide remedies to consumers who buy automobiles that repeatedly fail to meet standards of quality and performance

shipment contract

requires or authorizes the seller to ship goods by a carrier, rather than to deliver them at a particular destination. Seller must... -Put the goods into the hands of the carrier -Make a contract for their transportation that is reasonable according to the matter of the goods and their value -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 -Promptly notify the buyer that shipment has been made

Perfect Tender Rule

the legal right of a buyer or lessee of goods to insist on perfect tender by the seller or lessor. If the goods fail to conform to the contact, the buyer may accept the goods, reject the goods, or accept part and reject part of the goods tendered.

destination contract

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

When goods are in transit

•Effect of Insolvency and Breach: seller or lessor can stop the carrier or bailee from delivering regardless of the quantity of goods shipped •Requirements for Stopping Delivery: seller or lessor must timely notify the carrier or other bailee the goods are to be returned or held for the seller or lessor until the buyer or lessee obtains possession of the goods, carrier or bailee acknowledges the rights of the buyer of lessee in the goods, and a negotiable document of title covering the goods has been properly transferred