Business LawTenth EditionChapter 20Remedies for Breach of

Business Law
Tenth Edition
Chapter 20
Remedies for Breach of Sales and Lease Contracts
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All
Rights Reserved.
Rights Reserved.
Learning Objectives
20.1 Describe seller and lessor performance of sales and lease
contracts.
20.2 Describe buyer and lessee performance of sales and lease
contracts.
20.3 List and describe seller and lessor remedies for buyer and
lessee breach of sales and lease contracts.
20.4 List and describe buyer and lessee remedies for seller and
lessor breach of sales and lease contracts.
20.5 List and describe additional performance issues.
Rights Reserved.
Introduction
Parties to a sales or lease contract owe a duty to perform the
obligations specified in their agreement
Obligation: Action a party to a sales or lease contract is
required by law to carry out
When one party breaches a sales or lease contract, the Uniform
Commercial Code (UCC) provides the injured party with a
variety of prelitigation and litigation remedies

Breach: Failure of a party to perform an obligation in a sales or
lease contract
Rights Reserved.
Seller and Lessor Performance (1 of 5)
Seller’s or lessor’s basic obligation is the tender of delivery
Tender of delivery: Obligation of a seller to transfer and deliver
goods to the buyer or lessee in accordance with a sales or lease
contract
Put and hold conforming goods at the buyer’s or lessee’s
disposition
Give the buyer or lessee any notification reasonably necessary
to enable delivery of goods
Rights Reserved.
Place of delivery
The UCC stipulates place of delivery based on the following
rules:
Noncarrier cases
Carrier cases
Shipment contract
Destination contract
Rights Reserved.
Shipment contract: Sales contract that requires the seller to send
the goods to the buyer but not to a specifically named
destination
Destination contract: Sales contract that requires the seller to

deliver the goods to the buyer’s place of business or another
specified destination
Rights Reserved.
Perfect tender rule
If the goods or tender of a delivery fail in any respect to
conform to the contract, the buyer may opt to:
Reject the entire shipment
Accept the whole shipment
Reject part and accept part of the shipment
Rights Reserved.
Installment contracts
Requires or authorizes goods to be delivered and accepted in
separate lots
Entire contract can be rejected only if the default substantially
impairs the value of the entire contract
Destruction of goods
If goods identified in a sales or lease contract are totally
destroyed without fault of either party before the risk of loss
passes to either party, the contract is void
Rights Reserved.
Buyer and Lessee Performance (1 of 4)
Right of Inspection
Buyer has the right to inspect goods before paying for them
Buyer may reject nonconforming goods
Parties may agree to time, place, and manner of inspection

If a contract is silent, inspection must occur at reasonable time
and place
Rights Reserved.
Acceptance: Act that occurs when a buyer or lessee takes either
of the following actions after a reasonable opportunity to
inspect the goods that are the subject of a contract:
Signifies to the seller in words or by conduct that the goods are
conforming or that the buyer will take or retain the goods
despite their nonconformity OR
Fails to effectively reject the goods within a reasonable time
after their delivery or tender by the seller
Rights Reserved.
Payment
Due from buyer when and where goods delivered
Goods can be paid in any manner acceptable in ordinary course
of business
If cash required, buyer must be given an extension to procure
the cash
Rights Reserved.
Case 20.1: Acceptance of Goods
Case
Accent Commercial Furniture, Inc. v. P. Schneider &
Associates, PLLC
110 A.D.3d 1415 (2013)
Issue

Does Schneider owe Accent the remaining balance?
Rights Reserved.
Revocation of acceptance: Buyer can revoke acceptance if:
Goods are nonconforming;
Nonconformity substantially impairs value of goods to the
buyer, AND
One of the following:
Seller’s promise to timely cure are not met
Goods were accepted before nonconformity was discovered &
nonconformity was difficult to discover
Goods were accepted before nonconformity discovered and
sellers assured that goods were conforming
Rights Reserved.
Seller and Lessor Remedies (1 of 4)
Right to withhold delivery
Right of a seller to refuse to deliver goods to a buyer on breach
of a sales or lease contract by the buyer or the insolvency of the
buyer or lessee
Right to stop delivery of goods in transit
Right of a seller to stop delivery of goods in transit if he or she
learns of the buyer’s insolvency or if the buyer repudiates the
contract, fails to make payment when due, or gives the seller
some other right to withhold the goods
Rights Reserved.
Right to reclaim goods

Right of a seller or lessor to demand the return of goods from
the buyer or lessee under specified situations
Right to dispose of goods
Right of a seller to dispose of goods in a good faith and
commercially reasonable manner
Unfinished Goods
Seller may choose to cease manufacturing OR complete
manufacturing and resell, release, or otherwise dispose of them
to another party
Rights Reserved.
Right to recover the purchase price or rent
Right of a seller to recover the contracted-for purchase price or
rent from the buyer
If the buyer fails to pay for accepted goods,
If the buyer breaches the contract and the seller cannot dispose
of the goods
If the goods are damaged or lost after the risk of loss passes to
the buyer
Right to recover damages for breach of contract
Right of a seller to recover damages measured as the difference
between the contract price (or rent) and the market price (or
rent) at the time and place the goods were to be delivered
Rights Reserved.
Right to cancel a contract
If the buyer or lessee breaches the contract by rejecting or
revoking acceptance of the goods, failing to pay for the goods,
or repudiating all or any part of the contract

Rights Reserved.
Buyer and Lessee Remedies (1 of 3)
Right to reject nonconforming goods or improperly tendered
goods
Right of a buyer to reject goods that do not conform to a
contract
Right to recover goods from an insolvent seller or lessor
Right of a buyer who has wholly or partially paid for goods
before they are received to recover the goods from a seller who
becomes insolvent within ten days after receiving the first
payment
Rights Reserved.
Right to obtain specific performance
Specific performance: Decree of the court that orders a seller or
lessor to perform his or her obligations under the contract
Right to replevy goods
Replevin: An action by a buyer or lessor to recover scarce
goods wrongfully withheld by a seller or lessor
Rights Reserved.
Right to cancel a contract
If a seller fails to deliver conforming goods or repudiates the
contract, the buyer may cancel the sales or lease contract
Right to recover damages for nondelivery or repudiation
If a seller or lessor fails to deliver the goods or repudiates the
sales of lease contract, the buyer or lessee has the right to

recover damages
Right to recover damages for accepted nonconforming goods
Must notify the seller within a reasonable time after discovery
Rights Reserved.
Additional Performance Issues (1 of 3)
Assurance of performance
Party with grounds to believe that the other party will not
perform may demand adequate assurance of performance
Adequate assurance of performance: Adequate assurance of
performance from the other party if there is an indication that a
contract will be breached by that party
Performance may be suspended until adequate assurance of due
performance is received from the other party
Rights Reserved.
Statute of limitations: Rule that provides that an action for
breach of any written or oral sales or lease contract must
commence within four years after the cause of action accrues
Parties may reduce time to one year
Parties cannot extend the time beyond four years
Rights Reserved.
Agreements affecting remedies
Parties may agree to remedies in addition to those available
under the UCC, or agree to limit remedies
Liquidated damages: Damages that will be paid upon a breach
of the contract that are established in advance

Preestablished damages
Substitute for actual damages
Rights Reserved.
Copyright
Rights Reserved.
24
Business Law
Tenth Edition
Chapter 19
Title to Goods and Risk of Loss
Rights Reserved.
Rights Reserved.
Learning Objectives (1 of 2)
19.1 Describe how title to good passes in sales contracts.
19.2 Describe what party bears the risk of loss of goods where
there is no breach of the sales contract.
19.3 Describe what party bears the risk of loss of goods where
there has been a breach of a sales contract.
19.4 Describe which party bears the risk of loss of goods in
conditional sales contracts.

Rights Reserved.
19.5 Describe what party bears the risk of loss of goods in lease
contracts.
19.6 Identify who bears the risk of loss when goods are stolen
and resold.
Rights Reserved.
Introduction
Common law placed the risk of loss to goods on the party who
held title to the goods
Article 2 of the Uniform Commercial Code (UCC) rejects this
notion and adopts concise rules for risk of loss that are not tied
to title
Article 2A (Leases) of the UCC establishes rules regarding title
and risk of loss for leased goods
Rights Reserved.
Identification of Goods (1 of 2)
Distinguishing goods named in a contract from the seller’s or
lessor’s other goods
In the absence of an agreement, the UCC mandates when
identification occurs
Already existing goods are identified when a contract is made
and names the specific goods sold or leased
Rights Reserved.
Identification of Goods (2 of 2)

Goods that are part of a larger mass of goods are identified
when the specific merchandise is designated
Future goods: Goods not yet in existence
Identified when the goods are shipped, marked, or designated by
the seller or lessor as the goods to which the contract refers
Rights Reserved.
Passage of Title
Title: Legal, tangible evidence of ownership of goods
Passage of title to goods
If the parties do not agree to a specific time, title passes to the
buyer when and where the seller’s performance with reference
to the physical delivery is completed
Rights Reserved.
Shipment and Destination Contracts
Shipment contract: Requires the seller to ship the goods to the
buyer via a common carrier
Destination contract: Requires the seller to deliver the goods
either to the buyer’s place of business or to another destination
specified in the sales contract
Rights Reserved.
Delivery of Goods without Moving Them
Buyer is required to pick up the goods from the seller
If the document of title or bill of lading is required, the title
passes when the seller delivers the document
Document of title: Actual piece of paper that is required in
some transactions of pickup and delivery
If no document of title and goods are identified, the title passes

at the time of contracting
Rights Reserved.
Risk of Loss – No Breach of the Sales Contract (1 of 3)
Carrier cases: Movement of goods
Shipment contracts
Risk of loss in a shipment contract: Buyer bears the risk of loss
during transportation
Destination contracts
Risk of loss in a destination contract: Seller bears the risk of
loss during transportation
Rights Reserved.
Noncarrier cases: No movement of goods
Merchant seller
Bears the risk of loss between the time of contracting and the
time the buyer picks up the goods
Nonmerchant seller
Risk of loss passes to buyer upon tender of delivery of the
goods
Rights Reserved.
Goods in possession of a bailee
Bailee: Holder of goods who is not a seller or a buyer
If goods are to be delivered to the buyer without the seller
moving them, the risk of loss passes to the buyer when:
Buyer receives negotiable document of title
Bailee acknowledges buyer’s right to possession

Buyer receives a nonnegotiable document of title and has
reasonable time to demand goods
Rights Reserved.
Risk of Loss – Breach of the Sales Contract (1 of 2)
Seller in breach of a sales contract
Seller tenders or delivers nonconforming goods to the buyer
Risk of loss remains on the seller until:
Defect or nonconformity is cured
Buyer accepts the nonconforming goods
Rights Reserved.
Risk of Loss – Breach of the Sales Contract (2 of 2)
Buyer breaches a sales contract if he or she:
Refuses to take delivery of conforming goods
Repudiates the contract
Breaches the contract
Rights Reserved.
Risk of Loss in Conditional Sales (1 of 4)
Conditional sales: Seller entrusts possession of goods to a buyer
on a trial basis
Sale on approval: No actual sale occurs until the buyer accepts
the goods
Risk of loss and title pass when the goods are accepted by the
buyer
Rights Reserved.

Sale on approval
Acceptance of the goods occurs if the buyer:
Expressly indicates acceptance
Fails to notify the seller of rejection of the goods within the
agreed-on trial period
Uses the goods inconsistently with the purpose of the trial
Rights Reserved.
Sale or return
Sale or return contract: Seller delivers goods to a buyer with the
understanding that the buyer may return the goods if they are
not used or resold within a stated or reasonable period of time
Risk of loss and title pass to buyer when buyer has possession
of goods
Rights Reserved.
Consignment: Arrangement in which a seller (the consignor)
delivers goods to a buyer (the consignee) to sell on his or her
behalf
Treated as sale or return under the UCC
Rights Reserved.
Risk of Loss in Lease Contracts
Passes to the lessee on the receipt of the goods in ordinary
lease, if the lessor is a merchant
Passes to lessee in case of finance lease
Remains with the lessor or the supplier until cure or acceptance

if tendered goods are nonconforming
Rights Reserved.
Sale of Goods by Nonowners (1 of 3)
Void title: Situation in which a thief acquires no title to goods
he or she steals
Purchaser does not acquire title to the goods
Lessee has no leasehold interest in stolen goods
Rightful owner can reclaim
Rights Reserved.
Fraudulently obtained goods
Voidable title: Title that a purchaser has on goods obtained by:
Fraud
Check that is later dishonored
Impersonation of another person
Good faith purchaser for value: Person to whom good title can
be transferred from a person with voidable title
Rights Reserved.
Entrustment rule: Merchant has the power to transfer all rights
in the goods to a buyer in the ordinary course of business
If the owner entrusts the possession of his/her goods to a
merchant who deals in goods of that kind
Real owner cannot reclaim the goods from the buyer
Rights Reserved.

Case 19.1: State Court Case Entrustment Rule
Case
Lindholm v. Brant
925 A.2d 1048, Web 2007 Conn. Lexis 264 (2007)
Supreme Court of Connecticut
Issue
Is Brant a buyer in the ordinary course of business who has a
claim of ownership to Red Elvis that is superior to that of the
owner Lindholm?
Rights Reserved.
Copyright
Rights Reserved.
24
Business Law
Tenth Edition
Chapter 18
Formation of Sales and Lease Contracts
Rights Reserved.
Rights Reserved.

18.1 Describe the Uniform Commercial Code (UCC).
18.2 Define sales contracts governed by Article 2 of the UCC.
18.3 Define lease contracts governed by Article 2A of the UCC.
18.4 Describe the formation of sales and lease contracts and
define the firm offer rule.
18.5 Describe acceptance and define the UCC’s additional terms
rule and written confirmation rule.
Rights Reserved.
18.6 Describe the UCC Statute of Frauds for sales and lease
contracts.
18.7 Describe how Revised Article 2 (Sales) and Article 2A
(Leases) permit electronic contracting.
Rights Reserved.
Introduction
Article 2 (sales) and Article 2A (leases) of the UCC govern
personal property sales and leases
Intended to provide clear, easy-to-apply rules that place the risk
of loss of the goods on the party most able either to bear the
risk or insure against it
Rights Reserved.
Uniform Commercial Code (UCC)
Model act that includes comprehensive laws that cover most
aspects of commercial transactions
All the states have enacted all or part of the UCC as statutes

Rights Reserved.
Article 2 (Sales) (1 of 3)
Governs the sale of goods
Sale: Passing of title from a seller to a buyer for a price
Goods: Tangible things that are movable at the time of their
identification to a contract
Money and intangible items are not tangible goods
Real estate is not a tangible good
Rights Reserved.
Goods versus services
Contracts for the provision of services are not covered by
Article 2
Mixed sale: Involves the provision of a service and a good in
the same transaction
Article 2 applies to mixed sales only if the goods are
predominantly part of the transaction
Rights Reserved.
Exhibit 18.1: Sales Transaction
Rights Reserved.
Case 18.1: Good or Service
Case
Brandt v. Boston Scientific Corporation and Sarah Bush Lincoln
Health Center

204 Ill.2d 640, 792 N.E.2d 296, 2003 Ill. Lexis 785 (2003)
Supreme Court of Illinois
Issue
Is the transaction between Brandt and Health Center
predominantly the provision of services or the sale of goods?
Rights Reserved.
Merchant
One who deals in the goods of the kind involved in the
transaction
By his or her occupation holds himself or herself out as having
knowledge or skill peculiar to the goods involved in the
transaction
Rights Reserved.
Article 2A (Leases) (1 of 2)
Article 2A governs the lease of goods
Lease: Transfer of right to possession and use of named goods
for a set term, in return for certain consideration
Lessor: Person who transfers right of possession and use of
goods under a lease
Lessee: Person who acquires right to possession and use of
goods under a lease
Rights Reserved.
Exhibit 18.2: Lease

Rights Reserved.
Article 2A (Leases) (2 of 2)
Finance lease: Three-party transaction consisting of a lessor, a
lessee, and a supplier
Lessor acquires title to the goods or the right to their pos session
and use in connection with the terms of the lease
Rights Reserved.
Exhibit 18.3: Finance Lease
Rights Reserved.
Formation of Sales and Lease Contracts: Offer (1 of 4)
Gap-filling rule: Rule that says an open term can be read into a
contract
Contract does not fail because of indefiniteness if:
Parties intended to make a contract
There is a reasonably certain basis for giving an appropriate
remedy
Rights Reserved.
Open terms
Price
Payment
Delivery
Time
Assortment

Rights Reserved.
Firm offer rule: UCC rule that says that a merchant who:
Makes an offer to buy, sell, or lease goods
Assures the other party in a separate writing that the offer will
be held open; they cannot revoke the offer for the time stated
or, if no time is stated, for a reasonable time
Rights Reserved.
Consideration
Required for the formation of sales and lease contracts
Under the UCC, modifications to sales and lease contracts
require no consideration
Different from common law rule
Modification must be made in good faith
Rights Reserved.
Formation of Sales and Lease Contracts: Acceptance (1 of 2)
Contract created when an offeree sends acceptance to the
offeror, not when the offeror receives it
The UCC permits acceptance by any reasonable manner or
method of communication
Additional terms: In certain circumstances, the UCC permits an
acceptance of a sales contract to contain additional terms and to
act still as an acceptance rather than a counteroffer
Rights Reserved.

Formation of Sales and Lease Contracts: Acceptance (2 of 2)
Accommodation shipment
Accommodation: Shipment that is offered to a buyer as a
replacement for the original shipment when the original
shipment cannot be filled
Battle of the forms: UCC rule stating that if both parties are
merchants, then additional terms contained in the acceptance
may become part of the sales contract if certain requirements
are met
Rights Reserved.
UCC Statute of Frauds (1 of 4)
Rule in the UCC that requires all contracts for the sale of goods
costing $500 or more and lease contracts involving payments of
$1,000 or more to be in writing
Exceptions:
Specially manufactured goods
Admissions in pleadings or court
Part acceptance
Rights Reserved.
Written confirmation rule: If both parties to an oral sales or
lease contract are merchants, the Statute of Frauds writing
requirement can be satisfied if:
One of the parties to an oral agreement sends a written
confirmation of the sale or lease within a reasonable time after
contracting
Other merchant does not give written notice of an objection to
the contract within ten days after receiving the confirmation

Rights Reserved.
Parol evidence rule: When a sales or lease contract is evidenced
by a writing that is intended to be a final expression of the
parties’ agreement or confirmatory memorandum, the terms of
the writing may not be contradicted by evidence of:
Prior oral or written agreement, or
Contemporaneous oral agreement
Rights Reserved.
If express terms are not clear on their face, reference can be
made to outside sources:
Course of performance
Course of dealing
Usage of trade
Rights Reserved.
Electronic Sales and Lease Contracts (1 of 2)
Electronic agent
Computer program or an electronic or other automated means
used independently to initiate an action or respond to electronic
records without review or action by an individual
Electronic record
Created, generated, sent, communicated, received, or stored by
electronic means
Rights Reserved.
Electronic Sales and Lease Contracts (2 of 2)

Letter of credit
Document that is issued by a bank on behalf of a buyer who
purchases goods on credit from a seller that guarantees that if
the buyer does not pay for the goods, then the bank will pay the
seller
Article 5 (letters of credit)
Article of the UC that governs letters of credit
Rights Reserved.
Copyright
Rights Reserved.
27

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