Ch 16

Fundamentals of Business Fundamentals of Business LawLaw

Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.

ROGER LeROY MILLERInstitute for University Studies

Arlington, Texas

GAYLORD A. JENTZHerbert D. Kelleher Emeritus Professor in Business Law

University of Texas at Austin

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

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Learning ObjectivesLearning Objectives• What are the respective obligations of the

parties under a contract for 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?


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Learning ObjectivesLearning 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 lessor or lessor breaches the contract?

• 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?


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Performance ObligationsPerformance 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 the accept and pay for conforming goods.


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• 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.

Obligations of the Obligations of the Seller or LessorSeller or Lessor


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• 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.

Obligations of the Obligations of the Seller or LessorSeller or Lessor


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The Perfect Tender RuleThe Perfect Tender Rule• Perfect Tender Rule.

– Seller has duty to ship/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 Exceptions to Perfect TenderTender

• Agreement of the Parties.• Seller can cure within time for

performance.• Substitution of Carriers.• Installment Contracts.• Commercial Impracticability .

– Foreseeable vs. Unforeseeable Circumstances.– CASE 16.1 Maple Farms, Inc. v. City School

District of Elmira (New York, 1974).


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Exceptions to Perfect Exceptions to Perfect TenderTender

• Partial Performance.• Destruction of Identified Goods.• Right of Assurance.• Duty of Cooperation.

– Cooperative party can suspend performance to non-cooperative party.


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• 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.

Obligations of the Obligations of the Buyer or LesseeBuyer or Lessee


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Anticipatory RepudiationAnticipatory 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.


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Remedies of the Remedies of the Seller or LessorSeller or Lessor

• If Buyer breaches, and goods are in 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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• If Buyer is insolvent or will not perform, and 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.


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• 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 Remedies of the Buyer or LesseeBuyer or Lessee

• If the Seller is in breach of contract, the Buyer has various remedies.

• If Seller refuses to deliver the goods, the Buyer has the right to:– Cancel the Contract.– Recover the Goods.– Obtain Specific Performance.– “Cover”.– Recover Damages.


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Remedies of the Remedies of the Buyer or LesseeBuyer or Lessee

• If Seller delivers non-conforming goods, Buyer has the right to:– Reject Goods with Timely Notice.

• CASE 16.2 Jauregui v. Bobb’s Piano Sales & Service, Inc. (Florida, 2006).

– Revoke Acceptance.– Recover Damages for Accepted Goods.

• CASE 16.3 Fitl v. Strek (Nebraska, 2005).


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Limitation of RemediesLimitation of Remedies• Parties can agree to limit remedies.• Parties can expressly agree to provide

additional remedies than available under UCC.

• Limits on consequential damages.• Parties can agree that a remedy is

exclusive (the only remedy available).


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Statute of LimitationsStatute 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.