Chapter 12


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Sales and Leases: Performance and Breach

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Chapter 12

  1. 1. CHAPTER 12 Sales and Leases: Performance and Breach
  2. 2. <ul><li>What are the respective obligations of the parties under a contract for sale/lease of goods? </li></ul><ul><li>What is the perfect tender rule? </li></ul><ul><li>What remedies are available to a non-breaching party when the other party repudiates the contract prior to performance? </li></ul><ul><li>Are parties free to set the remedies available to the non-breaching party in the event of breach of contract? </li></ul>Learning Objectives
  3. 3. Performance Obligations <ul><li>Good faith and commercial reasonableness are implied in every contract. </li></ul><ul><li>Seller has a basic obligation to transfer and deliver conforming goods. </li></ul><ul><li>Buyer’s basic obligation is the accept and pay for conforming goods. </li></ul>
  4. 4. Obligations of the Seller <ul><li>Tender of Delivery. </li></ul><ul><ul><li>Seller has duty to notify Buyer that conforming goods are at the disposal of the Buyer to take delivery. </li></ul></ul><ul><ul><li>Reasonable place and time. </li></ul></ul>
  5. 5. Obligations of the Seller <ul><li>Place of Delivery (For Tender). </li></ul><ul><ul><li>Non-Carrier: Seller’s place of business. </li></ul></ul><ul><ul><li>Carrier Cases. </li></ul></ul><ul><ul><ul><li>Shipment : Seller must put conforming goods in carrier’s hands, notify Buyer shipment has been made and provide relevant documents. </li></ul></ul></ul><ul><ul><ul><li>Destination : Seller agrees to deliver goods at a particular destination. </li></ul></ul></ul>
  6. 6. Perfect Tender Rule <ul><li>Seller has duty to ship/tender conforming goods . </li></ul><ul><li>If goods are non-conforming (fail to conform to the agreement in any way), the Buyer has the right to: </li></ul><ul><ul><li>Accept the entire shipment. </li></ul></ul><ul><ul><li>Reject the entire shipment. </li></ul></ul><ul><ul><li>Accept or reject part of the shipment. </li></ul></ul>
  7. 7. Exceptions to Perfect Tender <ul><li>Agreement of the Parties. </li></ul><ul><li>Seller can cure within time for performance. </li></ul><ul><li>Substitution of Carriers. </li></ul><ul><li>Installment Contracts. </li></ul><ul><li>Commercial Impracticability . </li></ul><ul><ul><li>Foreseeable vs. Unforeseeable Circumstances. </li></ul></ul><ul><ul><li>Maple Farms, Inc. v. City School District of Elmira (1974). </li></ul></ul>
  8. 8. Exceptions to Perfect Tender <ul><li>Partial Performance. </li></ul><ul><li>Destruction of Identified Goods. </li></ul><ul><li>Right of Assurance. </li></ul><ul><ul><li>Koch Materials Co. v. Shore Slurry Seal, Inc. (2002). </li></ul></ul>
  9. 9. Obligations of the Buyer <ul><li>Payment. </li></ul><ul><li>Right of Inspection. </li></ul><ul><ul><li>C.O.D. Shipment. </li></ul></ul><ul><ul><li>Payment Due-Documents of Title. </li></ul></ul><ul><li>Acceptance. </li></ul><ul><ul><li>Expressly by words or conduct. </li></ul></ul><ul><ul><li>Presumed if Buyer had opportunity to inspect and failed to reject within a reasonable time. </li></ul></ul>
  10. 10. Anticipatory Repudiation <ul><li>Prior to performance, one party communicates to the other his intention not to perform. The non-breaching party can either: </li></ul><ul><ul><li>Treat the repudiation as a final breach and pursue a remedy, OR </li></ul></ul><ul><ul><li>Wait to see if the repudiating party will honor its obligations. </li></ul></ul><ul><li>In either case, the non-breaching party may suspend her own performance. </li></ul>
  11. 11. Remedies of the Seller <ul><li>The following remedies are available when Buyer is in Breach. </li></ul><ul><li>If goods are in Seller’s Possession , Seller has the right to: </li></ul><ul><ul><li>Cancel the Contract. </li></ul></ul><ul><ul><li>Withhold Delivery. </li></ul></ul><ul><ul><li>Resell or Dispose of Goods (Incidental Damages). </li></ul></ul><ul><ul><li>Recover the Purchase Price Due. </li></ul></ul><ul><ul><li>Right to Recover Damages. </li></ul></ul>
  12. 12. Remedies of the Seller <ul><li>If while goods are in transit , Seller learns that buyer is insolvent or will not perform, it has the right to: </li></ul><ul><ul><li>Stop the Carrier and Cancel the Contract. </li></ul></ul><ul><ul><li>Resell Goods. </li></ul></ul><ul><ul><li>Sue to recover the Deficiency between contract price and market. </li></ul></ul><ul><ul><li>Right to Recover Damages. </li></ul></ul><ul><ul><ul><li>Utica Alloys, Inc. v. Alcoa, Inc. (2004). </li></ul></ul></ul>
  13. 13. Remedies of the Seller <ul><li>When Goods are in Buyer’s Possession , Seller has the right to: </li></ul><ul><ul><li>Recover the Purchase Price or Payments Due. </li></ul></ul><ul><ul><li>Right to Reclaim Goods. </li></ul></ul>
  14. 14. Remedies of the Buyer <ul><li>If the Seller is in breach of contract, the Buyer has various remedies. </li></ul><ul><li>If Seller refuses to deliver the goods, the Buyer has the right to: </li></ul><ul><ul><li>Cancel the Contract. </li></ul></ul><ul><ul><li>Recover the Goods. </li></ul></ul><ul><ul><li>Obtain Specific Performance. </li></ul></ul><ul><ul><li>“Cover”. </li></ul></ul><ul><ul><li>Recover Damages. </li></ul></ul>
  15. 15. Remedies of the Buyer <ul><li>If Seller delivers non-conforming goods , Buyer has the right to: </li></ul><ul><ul><li>Reject Goods with Notice. </li></ul></ul><ul><ul><li>Revoke Acceptance. </li></ul></ul><ul><ul><li>Recover Damages for Accepted Goods. </li></ul></ul>
  16. 16. Limitation of Remedies <ul><li>Parties can agree to limit remedies. </li></ul><ul><li>Parties can expressly agree to provide additional remedies than available under UCC. </li></ul><ul><li>Parties can agree that a remedy is exclusive (the only remedy available). </li></ul><ul><li>Contract can limit consequential damages, provided the limitation is not unconscionable. </li></ul>
  17. 17. Statute of Limitations <ul><li>Action for breach of contract under UCC must commence within four years after the injury. </li></ul><ul><li>Plus, injured party must give adequate notice of injury to other party within a reasonable time. </li></ul>