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Sales and Leases: Performance and Breach PowerPoint PPT Presentation

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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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Sales and Leases: Performance and Breach

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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

  • 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 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

  • 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

  • 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

  • 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

  • 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 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 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

  • 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

  • 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

  • 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

  • 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

  • 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

  • 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 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 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 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

  • 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

  • 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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