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Sales and Leases: Performance and Breach

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BUSINESS LAW TODAY Essentials 9 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus. Chapter 12. Sales and Leases: Performance and Breach. Learning Objectives.

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BUSINESS LAW TODAYEssentials 9th Ed.Roger LeRoy Miller - Institute for University Studies, Arlington, TexasGaylord A. Jentz - University of Texas at Austin, Emeritus

Chapter 12

Sales and Leases: Performance and Breach

learning objectives
Learning Objectives
  • What are the respective obligations of the parties under a contract for the 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?
learning objectives3
Learning 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 seller or lessor breaches the contract?
  • In contracts subject to the UCC, are parties free to limit the remedies available to the nonbreaching party on a breach of contract? If so, in what ways?
performance obligations
Performance 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 to accept and pay for conforming goods that are properly tendered.
obligations of the seller or lessee
Obligations of the Seller or Lessee
  • 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.
  • 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.
perfect tender rule
Perfect Tender Rule
  • Seller has duty to ship or 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.
exceptions to perfect tender
Exceptions to Perfect Tender
  • By Agreement of the Parties.
    • Exceptions can be established by the sales contract itself.
  • Seller can “cure” within time for performance.
    • Seller has a right to repair, adjust, or replace nonconforming goods.
  • Substitution of Carriers.
    • If agreed upon carrier is not practicable, reasonable substitute carrier may tender.
exceptions to perfect tender8
Exceptions to Perfect Tender
  • Installment Contracts.
    • Only if substantially impairs value of installment.
  • Commercial Impracticability.
    • Extends only to unforeseeable circumstances.
    • CASE 12.1Maple City Farms, Inc. v. City School District of Elmira (1974). Maple City sued to cancel the agreement based on 23% increase in cost of milk. Court held the increase was foreseeable and not impracticable.
exceptions to perfect tender9
Exceptions to Perfect Tender
  • Partial Performance.
    • If unforeseen event affects partial performance, seller is obligated to secure remaining performance via third parties.
  • Destruction of Identified Goods.
    • Parties are excused only if the goods were identified at the time contract was formed.
  • Assurance and Cooperation.
    • If reasonable grounds to doubt, then written assurance. Parties have good faith duty to cooperate.
obligations of the buyer or lessee
Obligations of the Buyer or Lessee
  • 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.
  • Partial Acceptance.
    • Buyer does not have to accept less than a single commercial unit.
anticipatory repudiation
Anticipatory 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.
anticipatory repudiation remedies of the seller
Anticipatory Repudiation: Remedies of the Seller
  • If buyer is in breach, and goods are in the 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.
seller remedies when the goods are in transit
Seller Remedies: When the Goods are In Transit
  • If goods are in transit and seller learns that buyer is insolvent or will not perform, it 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.
seller s remedies goods in possession of buyer or lessee
Seller’s Remedies: Goods In Possession of Buyer or Lessee
  • When Goods are in Buyer’s Possession, Seller has the right to:
    • Recover the Purchase Price or Payments Due.
    • Right to Reclaim Goods.
remedies of the buyer or lessee
Remedies of the Buyer or Lessee
  • If seller refuses to deliver the goods, the buyer has the right to:
    • Cancel the contract.
    • Obtain goods that have been paid for.
    • Sue for specific performance.
    • CASE 12.2Houseman v. Dare (2009). A dog can have unique value that requires specific performance of returning the dog to its owner.
    • Right of “Cover”: buyer must act in good faith and without unreasonable delay.
remedies of the buyer or lessee16
Remedies of the Buyer or Lessee
  • If seller refuses to deliver the goods, the buyer has the right to:
    • Replevy Goods (action to recover specific goods).
    • Recover damages (difference between the contract price and market price).
remedies of the buyer or lessee17
Remedies of the Buyer or Lessee
  • If seller delivers non-conforming goods, buyer has the right to:
    • Reject Goods: can obtain cover, cancel contract or sue for damages.
    • Revoke Acceptance.
      • Acceptance based on nonconformity would be cured.
      • If discovery happened after possession.
remedies of the buyer or lessee18
Remedies of the Buyer or Lessee
  • If seller delivers non-conforming goods, buyer has the right to:
    • Recover Damages for Accepted Goods.
      • Buyer may keep goods and sue for damages (difference between value of goods as accepted and value if delivered as warranted).
      • What is a reasonable to revoke acceptance?
    • CASE 12.3Fitl v. Strek (2005).Fitl bought baseball card from Strek. Two years later learned it was defective. Court held for Fitl and awarded him the purchase price of $17,750.
limitation of remedies
Limitation of Remedies
  • Parties can agree to limit remedies.
  • Parties can expressly agree to provide additional remedies than available under UCC.
  • Exclusive Remedies: Parties can agree that a particular remedy is exclusive (the only remedy available).
  • Limitations on Consequential Damages.
statute of limitations
Statute 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.
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