Business Law Today, Essentials, 9th Ed.

BUSINESS LAW TODAY Essentials 9th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus

Chapter

12

Sales and Leases: Performance and Breach

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Learning Objectives  What are the respective obligations of the parties under a contract for the sale or lease of goods?  What is the perfect tender rule? What are some important exceptions to this rule that apply to sales and lease contracts?  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? © 2011 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.

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Learning Objectives  What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? What remedies are available to a buyer or lessee if the seller or lessor breaches the contract?  In contracts subject to the UCC, are parties free to limit the remedies available to the nonbreaching party on a breach of contract? If so, in what ways? © 2011 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.

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Performance Obligations  Good faith and commercial reasonableness are implied in every contract.  Seller has a basic obligation to transfer and deliver conforming goods.  Buyer’s basic obligation is to accept and pay for conforming goods that are properly tendered.

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Obligations of the Seller or Lessee  Tender of Delivery.  Seller has duty to notify Buyer that conforming goods are at the disposal of the Buyer to take delivery.  Reasonable place and time.

 Place of Delivery (For Tender).  Non-Carrier: Seller’s place of business.  Delivery via Carrier. • Shipment: Seller must put conforming goods in carrier’s hands, notify Buyer shipment has been made and provide relevant documents. • Destination: Seller agrees to deliver goods at a particular destination. © 2011 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.

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Perfect Tender Rule  Seller has duty to ship or tender conforming goods.  If goods fail to conform to the agreement in any way, the Buyer has the right to: Accept the entire shipment. Reject the entire shipment. Accept or reject part of the shipment.

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Exceptions to Perfect Tender  By Agreement of the Parties. Exceptions can be established by the sales contract itself.

 Seller can “cure” within time for performance.

Seller has a right to repair, adjust, or replace nonconforming goods.

 Substitution of Carriers.

If agreed upon carrier is not practicable, reasonable substitute carrier may tender. © 2011 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.

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Exceptions to Perfect Tender  Installment Contracts. Only if substantially impairs value of installment.

 Commercial Impracticability.

Extends only to unforeseeable circumstances. CASE 12.1 Maple City Farms, Inc. v. City School District of Elmira (1974). Maple City sued to cancel the agreement based on 23% increase in cost of milk. Court held the increase was foreseeable and not impracticable. © 2011 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.

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Exceptions to Perfect Tender  Partial Performance. If unforeseen event affects partial performance, seller is obligated to secure remaining performance via third parties.

 Destruction of Identified Goods.

Parties are excused only if the goods were identified at the time contract was formed.

 Assurance and Cooperation.

If reasonable grounds to doubt, then written assurance. Parties have good faith duty to cooperate. © 2011 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.

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Obligations of the Buyer or Lessee  Payment.  Right of Inspection. C.O.D. Shipment. Payment Due-Documents of Title.

 Acceptance.

Expressly by words or conduct. Presumed if Buyer had opportunity to inspect and failed to reject within a reasonable time.

 Partial Acceptance.

Buyer does not have to accept less than a single commercial unit. © 2011 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.

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Anticipatory Repudiation  Prior to performance, one party 

communicates to the other his intention not to perform. The non-breaching party can either:  Treat the repudiation as a final breach and pursue a remedy, OR  Wait to see if the repudiating party will honor its obligations.

 In either case, the non-breaching party may suspend her own performance. © 2011 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.

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Anticipatory Repudiation: Remedies of the Seller  If buyer is in breach, and goods are in the seller’s possession, seller has the right to: Cancel the Contract. Withhold Delivery. Resell or Dispose of Goods (Incidental Damages). Recover the Purchase Price Due. Right to Recover Damages.

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Seller Remedies: When the Goods are In Transit  If goods are in transit and seller learns that buyer is insolvent or will not perform, it 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.

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Seller’s Remedies: Goods In Possession of Buyer or Lessee  When Goods are in Buyer’s Possession, Seller has the right to: Recover the Purchase Price or Payments Due. Right to Reclaim Goods.

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Remedies of the Buyer or Lessee  If seller refuses to deliver the goods, the buyer has the right to: Cancel the contract. Obtain goods that have been paid for. Sue for specific performance. CASE 12.2 Houseman v. Dare (2009). A dog can have unique value that requires specific performance of returning the dog to its owner.

Right of “Cover”: buyer must act in good faith and without unreasonable delay. © 2011 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.

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Remedies of the Buyer or Lessee  If seller refuses to deliver the goods, the buyer has the right to: Replevy Goods (action to recover specific goods). Recover damages (difference between the contract price and market price).

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Remedies of the Buyer or Lessee  If seller delivers non-conforming goods, buyer has the right to: Reject Goods: can obtain cover, cancel contract or sue for damages. Revoke Acceptance. • Acceptance based on nonconformity would be cured. • If discovery happened after possession.

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Remedies of the Buyer or Lessee  If seller delivers non-conforming goods, buyer has the right to: Recover Damages for Accepted Goods. • Buyer may keep goods and sue for damages (difference between value of goods as accepted and value if delivered as warranted). • What is a reasonable to revoke acceptance?

CASE 12.3 Fitl v. Strek (2005). Fitl bought baseball card from Strek. Two years later learned it was defective. Court held for Fitl and awarded him the purchase price of $17,750.

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Limitation of Remedies  Parties can agree to limit remedies.  Parties can expressly agree to provide additional remedies than available under UCC.  Exclusive Remedies: Parties can agree that a particular remedy is exclusive (the only remedy available).  Limitations on Consequential Damages. © 2011 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.

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Statute of Limitations  Action for breach of contract under UCC must commence within four years after the injury.  Plus, injured party must give adequate notice of injury to other party within a reasonable time.

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