Chapter 1: Legal Ethics 1. © 2013 Cengage Learning. All Rights Reserved. May not be copied,...

Chapter 1: Legal EthicsCHAPTER 14:

PERFORMANCE ANDBREACH OF SALES AND

LEASE CONTRACTS

2© 2013 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.

Learning Objectives

1. What are the respective obligations of the parties under a contract for sale or lease of goods?

2. What is the perfect tender rule? 3. 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?

Learning Objectives

4. What remedies are available to a seller or lessor when the buyer or lessee breaches the contract?

5. In contracts subject to the UCC, are parties free to limit the remedies available to the non-breaching party on a breach of contract? If so, in what ways?

Performance Obligations

• General Principles:– Seller must transfer and deliver conforming goods.– Buyer must accept and pay for conforming goods.– In the absence of an agreement between seller

and buyer, UCC Article 2 controls as set out below.

Obligations of the Seller or Lessor

Tender of Delivery: occurs when seller delivers conforming goods to buyer.–Requires reasonable notice.–Reasonable hour and manner. –Generally, all goods in one installment

(unless agreed upon by parties).

• Place of Delivery.– Parties can agree goods tendered at a particular

destination for buyer to take possession.– If the contract does not specify, then it is the

seller’s place of business (or the location of the goods.)

• Delivery via Carrier.– Shipment Contracts.• 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.

• Delivery via Carrier.– Destination Contracts.• Seller agrees to deliver conforming contracts to the

buyer at a particular destination, along with necessary documentation.

• Perfect Tender Rule.– If goods, or tender of delivery, fail in any respect to

conform to the contract, the Buyer has the right to:• Accept the goods; • Reject the entire shipment; or• Accept part and reject part.

Exceptions to Perfect Tender.– Agreement of the Parties: agree that some

defective goods will be acceptable.–Cure: seller has right to repair or replace

defective goods within the time of contract performance. Substantially restricts right of rejection; buyers must act in good faith and give specific reasons for refusing acceptance.

Exceptions to Perfect Tender.– Substitution of Carriers. If a carrier becomes

impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable.– Installment Contracts.

Exceptions to Perfect Tender.– Commercial Impracticability.• If unforeseeable event occurs, the perfect

tender rule no longer applies. • Seller must notify the buyer as soon as

practicable the shipment is delayed or undeliverable.

Exceptions to Perfect Tender.– Commercial Impracticability.• CASE 14.1 MAPLE FARMS, INC. V. CITY

SCHOOL DISTRICT OF ELMIRA (1974). Would you consider a 23% price increase a commercial impracticability?

Exceptions to Perfect Tender.–Destruction of Identified Goods. • If no fault of either party and it occurs,• Before risk passes to Buyer then, • Both Seller and Buyer are excused from

performance.

Exceptions to Perfect Tender.–Assurance and Cooperation. • One party has “reasonable grounds” to

believe other party will not perform, she can ask for written assurance, or ‘suspend’ performance or delivery.• Failure to respond may constitute a

repudiation of the contract.

Obligations of the Buyer or Lessee

Payment: make payment at the time and place the Buyer receives the goods.–Credit has to be prearranged.–Pay with cash, credit card, check.

Right of Inspection.–Buyer has absolute right to inspection

before payment, unless C.O.D.–CASE 14.2 ROMERO V. SCOGGIN-

DICKEY CHEVROLET-BUICK, INC. (2010). Is the right to inspect good policy?

Acceptance.–Buyer can accept goods:• By words or conduct.• If Buyer had reasonable amount of time

and failed to reject.• Buyer performs an act which indicates he

thinks he is the owner.

Acceptance.–Partial Acceptance. • If some of the goods do not conform to

the contract, and seller has failed to cure, buyer can make a partial acceptance. • But buyer cannot accept less a single

commercial unit.

Anticipatory Repudiation.–A party communicates intention to not

perform.• Constitutes breach of contract.• Nonbreaching party may suspend

performance and treat the AR as material breach and pursue a remedy; or wait a reasonable time.

Anticipatory Repudiation.–A Repudiation May Be Retracted.• Breaching party may ‘retract’ repudiation

by any method that clearly indicates their intent.• However, no retraction if the

nonbreaching party has materially changed their position.

Remedies of the Seller or Lessor

When buyer breaches, seller has various UCC remedies, depending on circumstances:–Who has possession of the goods? –Are goods in transit?–Has buyer rejected or accepted the

goods?

When Goods are in Possession of Seller or Lessor, she has the:–The Right to Cancel (Rescind) the

Contract.• Seller must notify buyer.• Buyer is not discharged from remaining

obligations.

When Goods are in Possession of Seller or Lessor, she has the:–Right to Withhold Delivery.• If material breach by buyer, seller can

withhold delivery of all goods.• If non-material breach, seller can withhold

delivery of this installment.

When Goods are in Possession of Seller or Lessor, she has the:–Right to Resell or Dispose of Goods.• Seller can resell and keep profits from sale

and hold buyer liable for difference. • Seller must give buyer notice of sale,

unless goods are perishable.

When Goods are in Possession of Seller or Lessor, she has the:–The Right to Recover Purchase Price.• Seller can bring action to recover purchase

price or lease payments.• If seller must sue, he must hold goods for

buyer, and sell any time before collecting the judgment.

When Goods are in Possession of Seller or Lessor, she has the:–The Right to Recover Damages.• If buyer repudiates or wrongfully chooses to

accept goods, seller can bring action to recover damages.• Damages: market price at the time & place

of tender + incidentals.

When Goods are in Transit, Seller 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.

When Goods in Possession of the Buyer or Lessee.–Recover the Purchase Price or Payments

Due.–Right to Reclaim Goods.

Remedies of the Buyer or Lessee

When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to:–Sue for Specific Performance and

recover damages.–Cover: in some situations.–Replevy Goods.

When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Recover Damages.• CASE 14.3 LES ENTREPRISES JACQUES

DEFOUR & FILS, INC. V. DINSICK EQUIPMENT CORP. (2011). When did the Buyer fully perform? How did the Seller breach the contract?

When Seller Delivers Nonconforming Goods, Buyer has the:–Right to Reject Goods. • Buyer must timely notify seller of rejection

and reasons and follow seller’s directions.•Merchant-buyer has good faith obligation

to follow reasonable instructions.

When Seller Delivers Nonconforming Goods, Buyer has the:–Right to Revoke Acceptance, if• Acceptance assumed defect would be cured, • Nonconformity was discovered after

acceptance, or • Effective upon notice to seller.

When Seller Delivers Nonconforming Goods, Buyer has the:–Right to Recover Damages for Accepted

Goods.• Buyer may keep the goods and recover any loss

in ordinary course of events. • Measure of damages: difference between value

of accepted goods and goods as warranted.

Limitations of Remedies

Additional Provisions Affecting Remedies.–Exclusive Remedies.–Consequential Damages.–Lemon Laws.

Chapter 1: Legal Ethics 1. © 2013 Cengage Learning. All Rights Reserved. May not be copied,...

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