Chapter 20 Remedies for Breach of Sales and

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 2

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 3

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 4

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 5

Perfect Tender Rule • If goods fail to conform, buyer/lessee may: – Reject entire shipment – Accept whole shipment, or – Reject part and accept part © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 6

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 7

Cure • UCC gives seller/lessor opportunity to cure – time has not expired –

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 9

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 10

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 11

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 12

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 13

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”. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 14

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 nonconformity 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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 15

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 16

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 17

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 18

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

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 20

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 21

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 22

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 23

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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 24

Additional Performance Issues • Assurance of Performance – An adequate assurance of due performance may be demanded in writing by either party. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 25

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 26

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 27

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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 28