19 - 1© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

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Remedies for Breach of Sales and Lease

Contracts

Remedies for Breach of Sales and Lease

Contracts

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Tender of Delivery• Transfer or delivery of goods to

the buyer or lessee in accordance with sales or lease contract

• Requires:– Conforming goods to be put aside

and held for buyer or lessee– Notification be made to buyer or

lessee– Goods must be tendered in single

delivery unless otherwise noted in contract

– Payment due upon delivery unless otherwise noted

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Place of Delivery

• Contract usually states place and time of delivery

• If contract silent, place is seller’s or buyer’s place of business

• If they have no place of business, it is their residence

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Place of Delivery (continued)

• If goods at warehouse and are to be delivered without being moved, delivery occurs when seller:– Tenders buyer negotiable

document of title– Produces acknowledgement

from bailee of buyer’s right of possession

– Tenders nonnegotiable document of title or written direction to bailee to deliver goods to buyer

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Delivery in Carrier Cases• Shipment Contracts

– Do not name destination• Seller must put goods in carrier’s

possession and contract for delivery• Obtain and deliver all documents

necessary for buyer to obtain possession

• Notify buyer of shipment

• Destination Contracts– Names destination– Delivery must be made at

reasonable time and in reasonable manner

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Perfect Tender Rule

• If goods fail to conform, buyer/lessee may:– Reject entire shipment– Accept whole shipment, or– Reject part and accept part

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Exceptions• Agreement of Parties

– Parties may contract to limit perfect tender rule

• Defective or nonconforming goods may be rejected

• Seller/lessor may replace nonconforming goods

• Buyer/lessee accepts nonconforming goods with compensation

• Substitution of Carriers– Commercially reasonable carrier

may be substituted if agreed-upon delivery manner fails or becomes unavailable

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Cure

• UCC gives seller/lessor opportunity to cure– time has not expired – must notify buyer/lessee of

intentions

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Installment Contract

– Goods delivered and accepted at different times

– Requires specific knowledge– Seller can only reject entire

contract if default impairs value of entire contract

– Seller can reject non-conforming shipments

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Destruction of Goods

• Contract void– If goods are totally destroyed

through no fault of either party before risk of loss passes

– Both parties excused from performance

• Contract voidable– If goods are partially destroyed

through no fault of either party before risk of loss passes

– Buyer may inspect goods and choose to void the contract

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Buyer’s and Lessee’s Performance

• Once seller/lessee has tendered delivery, buyer/lessee is obligated to accept and pay as per sales/lease contract.

• If contract silent, UCC controls.

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Right of Inspection

• Buyer has the right to inspect goods before paying for them

• Buyer may reject nonconforming goods

• Parties may agree as to time and place of inspection

• If contract silent, inspection must occur at reasonable time and place

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Payment

– Due from buyer when and where goods delivered

– Contract may set terms– Can be paid in any

manner acceptable in ordinary course of business• If cash required, buyer

must be given an extension to secure cash

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Acceptance• Contract is created when the

offeree sends an acceptance to the offeror, not when the offeror receives the acceptance.

• The UCC permits acceptance by any reasonable manner or method of communication.

• Acceptance occurs if buyer acts inconsistently with seller’s ownership rights.

• Buyers/lessees must accept “commercial unit”.

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Revocation of Acceptance• Buyer can revoke acceptance

if:– Goods are non-conforming– The nonconformity substantially

impairs the value of the goods – The seller’s promise to timely cure is

not met– Goods were accepted before non-

conformity was discovered and the nonconformity was difficult to discover

– The goods were accepted before the nonconformity was discovered and the seller/lessor assured the buyer/lessee that the goods were conforming

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Right to Withhold Delivery• Delivery of goods may be

withheld if:– Seller/lessor is in possession of

goods when buyer/lessee breaches contract

– Buyer/lessee fails to make payment when due

– Buyer/lessee repudiates contract

• If part of the shipment has been delivered at time of breach, seller/lessor may withhold delivery of remainder.

• If seller/lessor discovers that buyer/lessee is insolvent, they may require cash payment.

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Right to Stop Goods in Transit

• Seller/lessor may stop shipment in transit if:– He discovers buyer’s/lessee’s

insolvency– Buyer/lessee repudiates

shipment– Buyer/lessee fails to make

payment when due

• Seller/lessor must give sufficient notice to allow bailee to prevent delivery

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Right to Reclaim Goods• Seller/lessor may reclaim

goods if:– The buyer misrepresented

their solvency in writing within 3 months before delivery

– Paid for goods with a check that bounced

– If the lessee is in default of the contract

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Right to Dispose of Goods• Must be made in good faith• Seller/lessor must give notice

to buyer/lessee of intention – Notice not required with

perishable goods or goods that will quickly decline in value

• Seller/lessor may recover damages

• Profit does not revert to original buyer

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Right to Recover the Purchase Price or Rent

• Seller/lessor may sue to recover if:– Buyer/lessee fails to pay as due– Buyer/lessee breaches contract

after goods have been identified and seller/lessor cannot resell or dispose of them

– Goods are damaged or lost after risk passes to buyer/lessee

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Additional Rights• Seller/lessor may sue to

recover damages caused by buyer’s or lessee’s breach.

• Seller/lessor may recover lost profits.

• Seller/lessor may cancel contract if buyer/lessee breaches.

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Buyer’s and Lessee’s Remedies• Buyer may reject nonconforming goods

or improperly tendered goods.– May reject the whole, accept the whole, or

accept any commercial unit and reject the rest

– Must reject within a reasonable time period.– Must follow reasonable instructions for return

of goods.• If goods are perishable, must make

reasonable effort to sell them on seller’s behalf.

– Buyer entitled to reimbursement for shipping, holding, storage expenses.

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Buyer’s and Lessee’s Remedies (continued)

• If buyer makes full or partial payment before goods are received and seller/lessor becomes insolvent within ten days of receiving payment, they can recover goods .

• If goods are unique, buyer can obtain specific performance

• Buyer/lessor may cover.• Buyer/lessee has right to replevy

goods, if they are wrongfully withheld.

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Buyer’s and Lessee’s Remedies (continued)

• Buyer/lessee may cancel contract if seller/lessor fails to deliver conforming goods or repudiates contract– Buyer/lessee may recover damages

• Buyer/lessee may recover damages for accepted nonconforming goods

• Buyer/lessee may recover damages for loss from seller’s breach

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Additional Performance Issues

• Assurance of Performance– An adequate assurance of due

performance may be demanded in writing by either party.

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Anticipatory Repudiation– Occurs when a party

repudiates the contract before performance is required.

– Wavering is not sufficient.– Aggrieved party may:

• Await performance for a commercially reasonable time.

• Treat contract as breached at time of anticipatory repudiation.

• Indicate repudiation is considered final.

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Statute of Limitations

– The UCC provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of the action accrues.

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Agreements Affecting Remedies

• Parties may agree to remedies in addition to those available under the UCC.

• UCC allows for liquidated damages as a substitute for actual damages.