Chapter 1: Legal Ethics 1

© 2013 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 1.What are the respective obligations of the parties under a contract for sale or lease of goods? 2.What is the perfect tender rule? 3.What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance? 2

© 2013 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 4.What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? 5.In contracts subject to the UCC, are parties free to limit the remedies available to the non-breaching party on a breach of contract? If so, in what ways? 3

© 2013 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 General Principles: General Principles: – Seller must transfer and deliver conforming goods. – Buyer must accept and pay for conforming goods. – In the absence of an agreement between seller and buyer, UCC Article 2 controls as set out below. 4

© 2013 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 Lessor Tender of Delivery: occurs when seller delivers conforming goods to buyer. Tender of Delivery: occurs when seller delivers conforming goods to buyer. – Requires reasonable notice. – Reasonable hour and manner. – Generally, all goods in one installment (unless agreed upon by parties). 5

© 2013 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 Lessor Place of Delivery. Place of Delivery. – Parties can agree goods tendered at a particular destination for buyer to take possession. – If the contract does not specify, then it is the sellers place of business (or the location of the goods.) 6

© 2013 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 Lessor Delivery via Carrier. Delivery via Carrier. – Shipment Contracts. Shipment: Seller must put conforming goods in carriers hands, notify Buyer shipment has been made and provide relevant documents. Destination: Seller agrees to deliver goods at a particular destination. 7

© 2013 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 Lessor Delivery via Carrier. Delivery via Carrier. – Destination Contracts. Seller agrees to deliver conforming contracts to the buyer at a particular destination, along with necessary documentation. 8

© 2013 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 Lessor Perfect Tender Rule. Perfect Tender Rule. – If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: Accept the goods; Reject the entire shipment; or Accept part and reject part. 9

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Agreement of the Parties: agree that some defective goods will be acceptable. – Cure: seller has right to repair or replace defective goods within the time of contract performance. Substantially restricts right of rejection; buyers must act in good faith and give specific reasons for refusing acceptance. 10

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Substitution of Carriers. If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. – Installment Contracts. 11

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Commercial Impracticability. If unforeseeable event occurs, the perfect tender rule no longer applies. Seller must notify the buyer as soon as practicable the shipment is delayed or undeliverable. 12

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Commercial Impracticability. CASE 14.1 M APLE F ARMS, I NC. V. C ITY S CHOOL D ISTRICT OF E LMIRA (1974). CASE 14.1 M APLE F ARMS, I NC. V. C ITY S CHOOL D ISTRICT OF E LMIRA (1974). Would you consider a 23% price increase a commercial impracticability? 13

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Destruction of Identified Goods. If no fault of either party and it occurs, Before risk passes to Buyer then, Both Seller and Buyer are excused from performance. 14

© 2013 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 Lessor Exceptions to Perfect Tender. Exceptions to Perfect Tender. – Assurance and Cooperation. One party has reasonable grounds to believe other party will not perform, she can ask for written assurance, or suspend performance or delivery. Failure to respond may constitute a repudiation of the contract. 15

© 2013 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: make payment at the time and place the Buyer receives the goods. Payment: make payment at the time and place the Buyer receives the goods. – Credit has to be prearranged. – Pay with cash, credit card, check. 16

© 2013 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 Right of Inspection. Right of Inspection. – Buyer has absolute right to inspection before payment, unless C.O.D. – CASE 14.2 R OMERO V. S COGGIN -D ICKEY C HEVROLET -B UICK, I NC. (2010). – CASE 14.2 R OMERO V. S COGGIN -D ICKEY C HEVROLET -B UICK, I NC. (2010). Is the right to inspect good policy? 17

© 2013 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 Acceptance. Acceptance. – Buyer can accept goods: By words or conduct. If Buyer had reasonable amount of time and failed to reject. Buyer performs an act which indicates he thinks he is the owner. 18

© 2013 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 Acceptance. Acceptance. – 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. 19

© 2013 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 Anticipatory Repudiation. Anticipatory Repudiation. – A party communicates intention to not perform. Constitutes breach of contract. Nonbreaching party may suspend performance and treat the AR as material breach and pursue a remedy; or wait a reasonable time. 20

© 2013 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 Anticipatory Repudiation. Anticipatory Repudiation. – A Repudiation May Be Retracted. Breaching party may retract repudiation by any method that clearly indicates their intent. However, no retraction if the nonbreaching party has materially changed their position. 21

© 2013 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 Seller or Lessor When buyer breaches, seller has various UCC remedies, depending on circumstances: When buyer breaches, seller has various UCC remedies, depending on circumstances: – Who has possession of the goods? – Are goods in transit? – Has buyer rejected or accepted the goods? 22

© 2013 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 Seller or Lessor When Goods are in Possession of Seller or Lessor, she has the: When Goods are in Possession of Seller or Lessor, she has the: – The Right to Cancel (Rescind) the Contract. Seller must notify buyer. Buyer is not discharged from remaining obligations. 23

© 2013 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 Seller or Lessor When Goods are in Possession of Seller or Lessor, she has the: When Goods are in Possession of Seller or Lessor, she has the: – Right to Withhold Delivery. If material breach by buyer, seller can withhold delivery of all goods. If non-material breach, seller can withhold delivery of this installment. 24

© 2013 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 Seller or Lessor When Goods are in Possession of Seller or Lessor, she has the: When Goods are in Possession of Seller or Lessor, she has the: – Right to Resell or Dispose of Goods. Seller can resell and keep profits from sale and hold buyer liable for difference. Seller must give buyer notice of sale, unless goods are perishable. 25

© 2013 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 Seller or Lessor When Goods are in Possession of Seller or Lessor, she has the: When Goods are in Possession of Seller or Lessor, she has the: – The Right to Recover Purchase Price. Seller can bring action to recover purchase price or lease payments. If seller must sue, he must hold goods for buyer, and sell any time before collecting the judgment. 26

© 2013 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 Seller or Lessor When Goods are in Possession of Seller or Lessor, she has the: When Goods are in Possession of Seller or Lessor, she has the: – The Right to Recover Damages. If buyer repudiates or wrongfully chooses to accept goods, seller can bring action to recover damages. Damages: market price at the time & place of tender + incidentals. 27

© 2013 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 Seller or Lessor When Goods are in Transit, Seller has the right to: When Goods are in Transit, Seller 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. 28

© 2013 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 Seller or Lessor When Goods in Possession of the Buyer or Lessee. When Goods in Possession of the Buyer or Lessee. – Recover the Purchase Price or Payments Due. – Right to Reclaim Goods. 29

© 2013 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 When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: – Sue for Specific Performance and recover damages. – Cover: in some situations. – Replevy Goods. 30

© 2013 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 When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Recover Damages. When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Recover Damages. CASE 14.3 L ES E NTREPRISES J ACQUES D EFOUR & F ILS, I NC. V. D INSICK E QUIPMENT C ORP. (2011). CASE 14.3 L ES E NTREPRISES J ACQUES D EFOUR & F ILS, I NC. V. D INSICK E QUIPMENT C ORP. (2011). When did the Buyer fully perform? How did the Seller breach the contract? 31

© 2013 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 When Seller Delivers Nonconforming Goods, Buyer has the: When Seller Delivers Nonconforming Goods, Buyer has the: – Right to Reject Goods. Buyer must timely notify seller of rejection and reasons and follow sellers directions. Merchant-buyer has good faith obligation to follow reasonable instructions. 32

© 2013 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 When Seller Delivers Nonconforming Goods, Buyer has the: When Seller Delivers Nonconforming Goods, Buyer has the: – Right to Revoke Acceptance, if Acceptance assumed defect would be cured, Nonconformity was discovered after acceptance, or Effective upon notice to seller. 33

© 2013 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 When Seller Delivers Nonconforming Goods, Buyer has the: When Seller Delivers Nonconforming Goods, Buyer has the: – Right to Recover Damages for Accepted Goods. Buyer may keep the goods and recover any loss in ordinary course of events. Measure of damages: difference between value of accepted goods and goods as warranted. 34

© 2013 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. Limitations of Remedies Additional Provisions Affecting Remedies. Additional Provisions Affecting Remedies. – Exclusive Remedies. – Consequential Damages. – Lemon Laws. 35