1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Chapter 16: Performance and Breach of Sales and Lease Contracts

2. 2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives What are the respective obligations of the parties under a contract for sale/lease of goods? What is the perfect tender rule? What are some important exceptions to this rule that apply to sales and lease contracts? What options are available to the nonbreaching party when the other party repudiates the contract prior to the time of performance?

3. 3 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? What remedies are available to a buyer or lessee if the seller or lessor breaches the contract? In contracts subject to the UCC, are parties free to limit the remedies available to the nonbreaching party on a breach of contract? If so, in what ways?

4. 4 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance Obligations Good faith and commercial reasonableness are implied in every contract. Seller has a basic obligation to transfer and deliver conforming goods. Buyer’s basic obligation is to accept and pay for conforming goods that are properly tendered.

5. 5 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Obligations of the Seller or Lessee Tender of Delivery. –Seller has duty to notify Buyer that conforming goods are at the disposal of the Buyer to take delivery. –Reasonable place and time. Place of Delivery (For Tender). –Non-Carrier: Seller’s place of business. –Delivery via Carrier. Shipment: Seller must put conforming goods in carrier’s hands, notify Buyer shipment has been made and provide relevant documents. Destination: Seller agrees to deliver goods at a particular destination.

6. 6 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Perfect Tender Rule Seller has duty to ship or tender conforming goods. If goods fail to conform to the agreement in any way, the Buyer has the right to: –Accept the entire shipment. –Reject the entire shipment. –Accept or reject part of the shipment.

7. 7 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Exceptions to Perfect Tender By Agreement of the Parties. –Exceptions can be established by the sales contract itself. Seller can “cure” within time for performance. –Seller has a right to repair, adjust, or replace nonconforming goods. Substitution of Carriers. –If agreed upon carrier is not practicable, reasonable substitute carrier may tender.

8. 8 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Exceptions to Perfect Tender Installment Contracts. –Only if substantially impairs value of installment. Commercial Impracticability. –Extends only to unforeseeable circumstances. Case 16.1 Maple City Farms, Inc. v. City School District of Elmira. Maple City sued to cancel the agreement based on 23% increase in cost of milk. Court held the increase was foreseeable and not impracticable.

9. 9 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Exceptions to Perfect Tender Partial Performance. –If unforeseen event affects partial performance, seller is obligated to secure remaining performance via third parties. Destruction of Identified Goods. –Parties are excused only if the goods were identified at the time contract was formed. Assurance and Cooperation. –If reasonable grounds to doubt, then written assurance. Parties have good faith duty to cooperate.

10. 10 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Obligations of the Buyer or Lessee Payment. Right of Inspection. –C.O.D. Shipment. –Payment Due-Documents of Title. Acceptance. –Expressly by words or conduct. –Presumed if Buyer had opportunity to inspect and failed to reject within a reasonable time. Partial Acceptance. –Buyer does not have to accept less than a single commercial unit.

11. 11 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Anticipatory Repudiation Prior to performance, one party communicates to the other his intention not to perform. The non-breaching party can either: –Treat the repudiation as a final breach and pursue a remedy, OR –Wait to see if the repudiating party will honor its obligations. In either case, the non-breaching party may suspend her own performance.

12. 12 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Anticipatory Repudiation: Remedies of the Seller If buyer is in breach, and goods are in the seller’s possession, seller has the right to: –Cancel the Contract. –Withhold Delivery. –Resell or Dispose of Goods (Incidental Damages). –Recover the Purchase Price Due. –Right to Recover Damages.

13. 13 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Seller Remedies: When the Goods are In Transit If goods are in transit and seller learns that buyer is insolvent or will not perform, it has the right to: –Stop the Carrier and Cancel the Contract. –Resell Goods. –Sue to recover the Deficiency between contract price and market. –Right to Recover Damages.

14. 14 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Seller’s Remedies: Goods In Possession of Buyer or Lessee When Goods are in Buyer’s Possession, Seller has the right to: –Recover the Purchase Price or Payments Due. –Right to Reclaim Goods.

15. 15 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Remedies of the Buyer or Lessee If seller refuses to deliver the goods, the buyer has the right to: –Cancel the contract. –Obtain goods that have been paid for. –Sue for specific performance. –Right of “Cover”: buyer must act in good faith and without unreasonable delay. Case 16.2 Houseman v. Dare. A dog can have unique value that requires specific performance of returning the dog to its owner.

16. 16 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Remedies of the Buyer or Lessee If seller refuses to deliver the goods, the buyer has the right to: –Reply Goods (action to recover specific goods). –Recover damages (difference between the contract price and market price).

17. 17 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Remedies of the Buyer or Lessee If seller delivers non-conforming goods, buyer has the right to: –Reject Goods: can obtain cover, cancel contract or sue for damages. –Revoke Acceptance. Acceptance based on nonconformity would be cured. If discovery happened after possession.

18. 18 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Remedies of the Buyer or Lessee If seller delivers non-conforming goods, buyer has the right to: –Recover Damages for Accepted Goods. Buyer may keep goods and sue for damages (difference between value of goods as accepted and value if delivered as warranted). What is a reasonable to revoke acceptance? Case 16.3 Fitl v. Strek. Fitl bought baseball card from Strek. Two years later learned it was defective. Court held for Fitl and awarded him the purchase price of $17,750.

19. 19 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Limitation of Remedies Parties can agree to limit remedies. Parties can expressly agree to provide additional remedies than available under UCC. Exclusive Remedies: Parties can agree that a particular remedy is exclusive (the only remedy available). Limitations on Consequential Damages.

20. 20 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Limitations Action for breach of contract under UCC must commence within four years after the injury. Plus, injured party must give adequate notice of injury to other party within a reasonable time.