P A R T 4 Sales Formation Terms

P A R T 4 Sales Formation & Terms Product Liability Performance of Sales Contract Remedies for Breach of Sales Contracts Mc. Graw-Hill/Irwin Business Law, 13/e © 2007 The Mc. Graw-Hill Companies, Inc. All rights

C H A P T E R 22 Remedies for Breach of Sales Contracts “Every great mistake has a halfway moment, a split second when it can be recalled and perhaps remedied. ” Pearl S. Buck, novelist, What America Means to Me (1943)

Learning Objectives v Agreements as to remedies v Seller’s remedies v Buyer’s remedies 22 - 4

Agreements as to Remedies v Parties may agree to remedies in the contract Agreed remedy applied in the event of a breach of contract to reduce risk w Example: “If delivery is not made by September 1, Seller will pay Buyer $1, 000 as liquidated damages. ” w 22 - 5

Liquidated Damages v In a liquidated damages clause, parties agree on the amount of damages to be paid to the injured party Enforced if amount is reasonable and if actual damages would be difficult to prove w Example: Baker v. International Record Syndicate, Inc. w If not enforceable because amount is a penalty or unconscionable, injured party may recover the actual damages suffered w 22 - 6

Limitation or Exclusion v In a limitation or exclusion clause , parties agree to limit either the remedies that the law makes available or the damages that can be covered [2– 719(1)] Limitations commonly placed on liability for consequential damages w But attempt to limit consequential damages for injury to a person by consumer goods is prima facie unconscionable [2– 719(3)] w 22 - 7

Star-Shadow Productions, Inc. v. Super 8 Sync Sound System v Facts : w Star-Shadow rented a camera and purchased film, but neither film nor camera worked until supplier Super 8 finally resolved problem w Star-Shadow sued Super 8 for consequential damages and Super 8 pointed to limitation of liability clause: “Limitation of Liability: This product will be repaired if defective in manufacture or packing. Except for such replacement this product is sold without warranty or liability even though defect, damage, or loss is caused by negligence or other fault. . ” 22 - 8

Star-Shadow Productions, Inc. v. Super 8 Sync Sound System v Procedural History and Holding: Trial court found for Super 8 w On appeal, Star-Shadow argued the limitation of liability clause failed to adequately protect them from damages caused by the defective film w Appellate court stated: “…fact that Star-Shadow has no protection other than their bargained-for remedy of replacement film does not make the limitation of liability clause unconscionable… affirmed…” w 22 - 9

Seller’s Remedies v If buyer breaches the contract and seller has goods, seller has several remedies: w Cancel the contract [2– 703(f)] and withhold delivery of goods [2– 703(a)] w Resell manufactured goods and recover damages (difference between resale price and price buyer agreed to pay by contract [2– 706]) 22 - 10

Seller’s Remedies - More v Recover purchase price of goods (must hold goods for buyer) v Recover damages for rejection/repudiation (1) difference between contract price and current market price for the goods and w (2) “profit” that seller lost when buyer did not go through with the contract [2– 708] w w 22 - 11 See Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co.

Seller’s Remedies - More v If buyer is insolvent and has the goods, seller may: w Recover purchase price w Reclaim goods in possession of buyer v If goods are in transit, seller may stop shipment 22 - 12

Duty to Mitigate Damages v Seller should select alternative that will minimize loss [2– 704(2)] v Example: Madsen v. Murrey & Sons Co. , Inc. w Seller, who did not complete manufacture of goods on buyer’s repudiation, but rather dismantled and largely scrapped the existing goods, was held not to have acted in a commercially reasonable manner 22 - 13

Seller’s Remedies & The CISG v Under the (CISG), aggrieved seller has five potential remedies when a buyer breaches the contract: v v v (1) suspension of seller’s performance (2) “avoidance” of the contract (3) reclamation of goods in buyer’s possession (4) an action for the price (5) an action for damages 22 - 14

Buyer’s Remedies v If seller breaches the contract, the buyer has several remedies: w Buy other goods (cover) and recover damages from seller based on any additional expense that buyer incurs in obtaining the goods [2– 712] w 22 - 15 Example: KGM Harvesting Co. v. Fresh Network

Buyer’s Remedies - More v Recover damages based on difference between contract price and current market price of goods [2– 713] v Recover damages for any nonconforming goods accepted by buyer based on difference in value between what buyer received and what buyer should have received [2– 714] w 22 - 16 Example: Jetpac Group, Ltd. v. Bostek , Inc.

Buyer’s Remedies - More v Obtain specific performance of the contract where goods are unique and cannot be obtained elsewhere [2– 716] 22 - 17

Seller’s Remedies & The CISG v Under the (CISG), aggrieved buyer has four potential types of remedies when a seller breaches the contract: (1) “avoidance” of the contract v (2) an adjustment in price v (3) specific performance v (4) an action for damages v 22 - 18

Test Your Knowledge v True=A, False = B w If buyer refuses to accept conforming goods, seller may recover damages, such as lost profit w If an insolvent buyer has the goods, the seller may reclaim the goods from buyer w If seller breaches the contract by failing to deliver the goods, buyer may “cover” and recover damages 22 - 19

Test Your Knowledge v Multiple w Widgets agreed to deliver 500 cases of grommets to Toy. Co by Sept. 1. Widgets knew Toy. Co needed the grommets to make toys for delivery by Dec. 1. Widgets delivered the order Nov. 29. Toy. Co may: (a) w (b) w (c) w (d) w (e) w 22 - 20 Choice buy grommets elsewhere to cover sue for damages obtain specific performance both A and B all of the above

Thought Question v Assume Nancy had a car to sell that she knew had been in an accident and repaired. Is it ethical to sell a damaged and repaired car without telling the potential buyer? 22 - 21