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Chapter 14: Performance and Breach of Sales and Lease Contracts

Chapter 14: Performance and Breach of Sales and Lease Contracts. Learning Objectives. What are the respective obligations of the parties under a contract for sale or lease of goods? What is the perfect tender rule?

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Chapter 14: Performance and Breach of Sales and Lease Contracts

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  1. Chapter 14: Performance andBreach of Sales and Lease Contracts

  2. Learning 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 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?

  3. Learning Objectives • What remedies are available to a seller or lessor when the buyer or lessee 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?

  4. 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. 

  5. 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).

  6. Obligations of the Seller or Lessor • 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.) 

  7. Obligations of the Seller or Lessor • 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. 

  8. Obligations of the Seller or Lessor • Delivery via Carrier. • Destination Contracts. • Seller agrees to deliver conforming contracts to the buyer at a particular destination, along with necessary documentation.

  9. Obligations of the Seller or Lessor • 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.

  10. Obligations of the Seller or Lessor • 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.

  11. Obligations of the Seller or Lessor • 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. 

  12. Obligations of the Seller or Lessor • 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. 

  13. Obligations of the Seller or Lessor • 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? 

  14. Obligations of the Seller or Lessor • 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.

  15. Obligations of the Seller or Lessor • 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.

  16. 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.

  17. Obligations of the Buyer or Lessee • 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?

  18. Obligations of the Buyer or Lessee • 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. 

  19. Obligations of the Buyer or Lessee • 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.

  20. Obligations of the Buyer or Lessee • 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. 

  21. Obligations of the Buyer or Lessee • 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.

  22. 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? 

  23. Remedies of the Seller or Lessor • 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. 

  24. Remedies of the Seller or Lessor • 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.

  25. Remedies of the Seller or Lessor • 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.

  26. Remedies of the Seller or Lessor • 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.

  27. Remedies of the Seller or Lessor • 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.

  28. Remedies of the Seller or Lessor • 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.

  29. Remedies of the Seller or Lessor • When Goods in Possession of the Buyer or Lessee. • Recover the Purchase Price or Payments Due. • Right to Reclaim Goods.

  30. 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. 

  31. Remedies of the Buyer or Lessee • When Seller or Lessor Refuses to Deliver the Goods, Buyer has the right to: Recover Damages. • CASE 14.3 Les EntreprisesJacques Defour & Fils, Inc. v. DinsickEquipment Corp. (2011). When did the Buyer fully perform? How did the Seller breach the contract?

  32. Remedies of the Buyer or Lessee • 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.

  33. Remedies of the Buyer or Lessee • 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.

  34. Remedies of the Buyer or Lessee • 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.

  35. Limitations of Remedies • Additional Provisions Affecting Remedies. • Exclusive Remedies. • Consequential Damages. • Lemon Laws.

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