1. Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5 th Edition by Henry R. Cheeseman Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA Chapter 21 Remedies for Breach of Sales and Lease Contracts Chapter 21 Remedies for Breach of Sales and Lease Contracts

2. 21 - 2Copyright © 2004 by Prentice-Hall. All rights reserved. Introduction Obligation – An action a party to a sales or lease contract is required by law to carry out. Obligation – An action a party to a sales or lease contract is required by law to carry out. Breach – Failure of a party to perform an obligation in a sales or lease contract. Breach – Failure of a party to perform an obligation in a sales or lease contract. When one party breaches the lease or sales contract, the UCC provides the injured party with a variety of pre-litigation and litigation remedies. When one party breaches the lease or sales contract, the UCC provides the injured party with a variety of pre-litigation and litigation remedies.

3. 21 - 3Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Obligations Tender of Delivery Tender of Delivery The obligation of the seller to transfer and deliver goods to the buyer or lessee in accordance with the sales or lease contract. The obligation of the seller to transfer and deliver goods to the buyer or lessee in accordance with the sales or lease contract. The parties may agree as to the time, place, and manner of delivery. The parties may agree as to the time, place, and manner of delivery.

4. 21 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Obligations (continued) Place of Delivery Place of Delivery Many sales and lease contracts state where the goods are to be delivered. Many sales and lease contracts state where the goods are to be delivered. If the contract does not expressly state where the delivery will take place, the UCC will stipulate place of delivery on the basis of whether a carrier is involved. If the contract does not expressly state where the delivery will take place, the UCC will stipulate place of delivery on the basis of whether a carrier is involved.

5. 21 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Obligations (continued) Bailee – a holder of goods who is not a seller or buyer. Bailee – a holder of goods who is not a seller or buyer. e.g., a warehouse e.g., a warehouse Shipment Contract – a sales contract that requires the seller to send the goods to the buyer, but not a specifically named destination. Shipment Contract – a sales contract that requires the seller to send the goods to the buyer, but not a specifically named destination. Destination Contract – a sales contract that requires the seller to deliver the goods to the buyers place of business or another specified destination. Destination Contract – a sales contract that requires the seller to deliver the goods to the buyers place of business or another specified destination.

6. 21 - 6Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Obligations (continued) Perfect Tender Rule Perfect Tender Rule The seller or lessor is under a duty to deliver conforming goods. The seller or lessor is under a duty to deliver conforming goods. If the goods or tender of delivery fails in any respect to conform to the contract, the buyer or lessee may opt either to: If the goods or tender of delivery fails in any respect to conform to the contract, the buyer or lessee may opt either to: 1. Reject the whole shipment, 2. Accept the whole shipment, or 3. Reject part and accept part of the shipment

7. 21 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations Right of Inspection Right of Inspection Unless otherwise agreed, the buyer or lessee has the right to inspect goods that are tendered, delivered, or identified to the sales contract prior to accepting or paying for them. Unless otherwise agreed, the buyer or lessee has the right to inspect goods that are tendered, delivered, or identified to the sales contract prior to accepting or paying for them. If the goods conform to the contract, the buyer pays for the inspection. If the goods conform to the contract, the buyer pays for the inspection.

8. 21 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations (continued) Payment Payment Goods that are accepted must be paid for. Goods that are accepted must be paid for. Unless the parties agree otherwise, payment is due from a buyer when and where the goods are delivered even if the place of delivery is the same as the place of shipment. Unless the parties agree otherwise, payment is due from a buyer when and where the goods are delivered even if the place of delivery is the same as the place of shipment.

9. 21 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations (continued) Acceptance Acceptance Occurs when the buyer or lessee takes any of the following actions after a reasonable opportunity to inspect the goods: Occurs when the buyer or lessee takes any of the following actions after a reasonable opportunity to inspect the goods: 1. Signifies to the seller or lessor in words or by conduct that the goods are conforming or that the buyer or lessee will take or retain the goods despite their nonconformity, or

10. 21 - 10Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations (continued) Acceptance (continued) Acceptance (continued) 2. Fails to effectively reject the goods within a reasonable time after their delivery or tender by the seller or lessor. Acceptance also occurs if a buyer acts inconsistently with the sellers ownership rights in the goods. Acceptance also occurs if a buyer acts inconsistently with the sellers ownership rights in the goods.

11. 21 - 11Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations (continued) Revocation of Acceptance Revocation of Acceptance A buyer or lessee who has accepted goods may subsequently revoke acceptance if: A buyer or lessee who has accepted goods may subsequently revoke acceptance if: 1. The goods are nonconforming, 2. The nonconformity substantially impairs the value of the goods to the buyer or lessee, and

12. 21 - 12Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Obligations (continued) Revocation of Acceptance (continued) Revocation of Acceptance (continued) 3. One of the following factors is shown: a) The sellers or lessors promise to seasonably remedy the nonconformity is not met, b) The goods were accepted before the nonconformity was discovered and the nonconformity was difficult to discover, or c) The goods were accepted before the nonconformity was discovered and the seller or lessor assured the the buyer or lessee that the goods were conforming

13. 21 - 13Copyright © 2004 by Prentice-Hall. All rights reserved. Adequate Assurance of Performance A party to a sales or lease contract may demand an adequate assurance of performance from the other party if there is an indication that the contract will be breached by that party. A party to a sales or lease contract may demand an adequate assurance of performance from the other party if there is an indication that the contract will be breached by that party.

14. 21 - 14Copyright © 2004 by Prentice-Hall. All rights reserved. Anticipatory Repudiation The repudiation of a sales or lease contract by one of the parties prior to the date set for performance. The repudiation of a sales or lease contract by one of the parties prior to the date set for performance. Mere wavering on performance does not meet the test for anticipatory repudiation. Mere wavering on performance does not meet the test for anticipatory repudiation.

15. 21 - 15Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies Right to Withhold Delivery Right to Withhold Delivery Delivery of the goods may be withheld if the seller or lessor is in possession of them when the buyer or lessee breaches the contract. Delivery of the goods may be withheld if the seller or lessor is in possession of them when the buyer or lessee breaches the contract. This remedy if the buyer or lessee: This remedy if the buyer or lessee: Wrongfully rejects or revokes acceptance of the goods, Wrongfully rejects or revokes acceptance of the goods, Fails to make payment when due, or Fails to make payment when due, or Repudiates the contract. Repudiates the contract.

16. 21 - 16Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Stop Delivery of Goods in Transit Right to Stop Delivery of Goods in Transit In Transit – a state in which goods are in the possession of a bailee or carrier and not in the hands of the buyer, seller, lessee, or lessor. In Transit – a state in which goods are in the possession of a bailee or carrier and not in the hands of the buyer, seller, lessee, or lessor. A seller or lessor may stop delivery of goods in transit if he or she learns of the buyers or lessees insolvency. A seller or lessor may stop delivery of goods in transit if he or she learns of the buyers or lessees insolvency.

17. 21 - 17Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Stop Delivery of Goods in Transit (continued) Right to Stop Delivery of Goods in Transit (continued) The same remedy is available if the buyer or lessee: The same remedy is available if the buyer or lessee: Repudiates the contract, Repudiates the contract, Fails to make payment when due, or Fails to make payment when due, or Otherwise gives the seller or lessor some other right to withhold or reclaim the goods. Otherwise gives the seller or lessor some other right to withhold or reclaim the goods.

18. 21 - 18Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Reclaim Goods Right to Reclaim Goods The right of a seller or lessor to demand the return of goods from the buyer or lessee under specified situations. The right of a seller or lessor to demand the return of goods from the buyer or lessee under specified situations. To exercise the right of reclamation, the seller or lessor must send the buyer or lessee a written notice demanding return of the goods. To exercise the right of reclamation, the seller or lessor must send the buyer or lessee a written notice demanding return of the goods.

19. 21 - 19Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Dispose of Goods Right to Dispose of Goods If the buyer or lessee breaches or repudiates the seller or lease contract before the seller or lessor has delivered the goods, the seller or lessor may resell or release the goods and recover damages from the buyer or lessee. If the buyer or lessee breaches or repudiates the seller or lease contract before the seller or lessor has delivered the goods, the seller or lessor may resell or release the goods and recover damages from the buyer or lessee. This right also arises if the seller or lessor has reacquired the goods after stopping them in transit. This right also arises if the seller or lessor has reacquired the goods after stopping them in transit.

20. 21 - 20Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Recover the Purchase Price or Rent Right to Recover the Purchase Price or Rent A seller or lessor may recover the contracted- for purchase price or rent from the buyer or lessee if the buyer or lessee: A seller or lessor may recover the contracted- for purchase price or rent from the buyer or lessee if the buyer or lessee: Fails to pay for accepted goods, Fails to pay for accepted goods, Breaches the contract and the seller or lessor cannot dispose of the goods, or if Breaches the contract and the seller or lessor cannot dispose of the goods, or if The goods are damaged or lost after the risk of loss passes to the buyer or lessee. The goods are damaged or lost after the risk of loss passes to the buyer or lessee.

21. 21 - 21Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Recover Damages for Breach of Contract Right to Recover Damages for Breach of Contract A seller or lessor may recover damages measured as the difference between the contract price (or rent) and the market price (or rent) at the time and place the goods were to be delivered, plus incidental damages, from a buyer or lessee who repudiates the contract or wrongfully rejects tendered goods. A seller or lessor may recover damages measured as the difference between the contract price (or rent) and the market price (or rent) at the time and place the goods were to be delivered, plus incidental damages, from a buyer or lessee who repudiates the contract or wrongfully rejects tendered goods.

22. 21 - 22Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Recover Damages for Breach of Contract (continued) Right to Recover Damages for Breach of Contract (continued) The seller or lessor may recover lost profits, plus an allowance of overhead and incidental damages, from the buyer or lessee if the recovery of damages would be inadequate to put the seller or lessor in as good a position as if the contract had been fully performed by the buyer or lessee. The seller or lessor may recover lost profits, plus an allowance of overhead and incidental damages, from the buyer or lessee if the recovery of damages would be inadequate to put the seller or lessor in as good a position as if the contract had been fully performed by the buyer or lessee.

23. 21 - 23Copyright © 2004 by Prentice-Hall. All rights reserved. Sellers and Lessors Remedies (continued) Right to Cancel the Contract Right to Cancel the Contract A seller or lessor may cancel a sales or lease contract if the buyer or lessee: A seller or lessor may cancel a sales or lease contract if the buyer or lessee: Rejects or revokes acceptance of the goods, Rejects or revokes acceptance of the goods, Fails to pay for the goods, or Fails to pay for the goods, or Repudiates the contract in part or in whole. Repudiates the contract in part or in whole.

24. 21 - 24Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Sellers and Lessors Remedies (1 of 2) Possession of Goods at Time of Buyers Breach Sellers or Lessors Remedies Goods in the possession of the seller Withhold delivery of the goods. Withhold delivery of the goods. Demand payment in cash if the buyer is insolvent. Demand payment in cash if the buyer is insolvent. Resell or re-lease the goods and recover the difference between the contract or lease price and the resale or re-lease price. Resell or re-lease the goods and recover the difference between the contract or lease price and the resale or re-lease price. Sue for breach of contract and recover damages. Sue for breach of contract and recover damages. Cancel the contract. Cancel the contract.

25. 21 - 25Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Sellers and Lessors Remedies (2 of 2) Possession of Goods at Time of Buyers Breach Sellers or Lessors Remedies Goods in the possession of a carrier or bailee Stop goods in transit: Stop goods in transit: Carload, truckload, planeload, or larger shipment if the buyer is solvent. Carload, truckload, planeload, or larger shipment if the buyer is solvent. Any size shipment if the buyer is insolvent. Any size shipment if the buyer is insolvent. Goods in the possession of the buyer Sue to recover the purchase price or rent. Sue to recover the purchase price or rent. Reclaim the goods. Reclaim the goods.

26. 21 - 26Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Remedies Right to reject nonconforming goods or improperly tendered goods Right to reject nonconforming goods or improperly tendered goods Right to recover goods from an insolvent seller or lessor Right to recover goods from an insolvent seller or lessor Right to obtain specific performance Right to obtain specific performance Right to cover Right to cover Right to replevy goods Right to replevy goods

27. 21 - 27Copyright © 2004 by Prentice-Hall. All rights reserved. Buyers and Lessees Remedies (continued) Right to cancel the contract Right to cancel the contract Right to recover damages for non-delivery or repudiation Right to recover damages for non-delivery or repudiation Right to recover damages for accepted nonconforming goods Right to recover damages for accepted nonconforming goods

28. 21 - 28Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Buyers and Lessees Remedies (1 of 2) Situation Buyers or Lessees Remedy Seller or lessor refuses to deliver the goods or delivers the nonconforming goods that the buyer or lessee does not want. Reject nonconforming goods Reject nonconforming goods Revoke acceptance of nonconforming goods Revoke acceptance of nonconforming goods Cover Cover Sue for breach of contract and recover damages Sue for breach of contract and recover damages Cancel the contract Cancel the contract

29. 21 - 29Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Buyers and Lessees Remedies (2 of 2) Situation Buyers or Lessees Remedy Seller or lessor tenders nonconforming goods and the buyer or lessee accepts them. Sue for ordinary damages Sue for ordinary damages Deduct damages from the unpaid purchase price Deduct damages from the unpaid purchase price Seller or lessor refuses to deliver the goods and the buyer or lessee wants them Sue for specific performance Sue for specific performance Replevy the goods Replevy the goods Recover the goods from an insolvent seller or lessor Recover the goods from an insolvent seller or lessor

30. 21 - 30Copyright © 2004 by Prentice-Hall. All rights reserved. UCC Statute of Limitations A rule that provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of action accrues. A rule that provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of action accrues. The parties may agree to reduce the limitations period to one year. The parties may agree to reduce the limitations period to one year.

31. 21 - 31Copyright © 2004 by Prentice-Hall. All rights reserved. Agreements Affecting Remedies The parties to a sales or lease contract may agree on remedies in addition to or in substitution for the remedies provided by the UCC. The parties to a sales or lease contract may agree on remedies in addition to or in substitution for the remedies provided by the UCC. Liquidated Damages: Liquidated Damages: Damages that will be paid upon a breach of contract Damages that will be paid upon a breach of contract Established in advance Established in advance