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CHAPTER 11 PERFORMANCE ANDBREACH IN SALES AND LEASE

CONTRACTS

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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?

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LEARNING OBJECTIVES

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?

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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?

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LEARNING OBJECTIVES

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?

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INTRODUCTION

Seller’s obligation is to transfer and deliver conforming goods.

Buyer’s obligation is to accept and pay for conforming goods.

Court imposes good faith standards when contract is unclear.

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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.

• Non-Carrier: Seller’s place of business.7

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OBLIGATIONS OF THE SELLER OR LESSEE

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.

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THE 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.

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THE PERFECT TENDER RULE CASE 11.1 Wilson Sporting Goods Co. v. U.S.

Golf & Tennis Centers, Inc. (2012). Once a seller delivers conforming goods, the buyer cannot reject the goods and cancel the contract.

EXCEPTIONS to the Perfect Tender Rule. Agreement of the Parties.

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Seller can “cure” within time for

performance.• Seller has a right to repair, adjust, or

replace nonconforming goods. Nature of defect must be disclosed.

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Substitution of Carriers.

• If agreed upon carrier is not practicable, reasonable substitute carrier may tender.

• Installment Contracts.• Only if substantially impairs value of

installment. 12

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Commercial Impracticability: extends

only to unforeseeable circumstances.• CASE 11.2 Maple City Farms, Inc. v City

School District of Elmira (1974). A 23% price increase was foreseeable, therefore not commercially impracticable.

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Partial Performance.

• If unforeseen event affects partial performance, seller is obligated to secure remaining performance via third parties.

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Destruction of Identified Goods.

• Parties are excused only if the goods were identified at the time contract was formed.

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THE PERFECT TENDER RULE

EXCEPTIONS to the Perfect Tender Rule. • Assurance and Cooperation.

• If reasonable grounds to doubt, then written assurance.

• Parties have good faith duty to cooperate.

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OBLIGATIONS OF THE BUYER OR LESSEE

Payment.Right of Inspection.

• C.O.D. Shipment.• Payment Due-Documents of Title.

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OBLIGATIONS OF THE BUYER OR LESSEE

Acceptance.• Expressly by words or conduct.• Presumed if buyer had opportunity to

inspect and failed to reject.Partial Acceptance.

• Buyer does not have to accept less than a single commercial unit.

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ANTICIPATORY REPUDIATION

Occurs when 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. 19

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ANTICIPATORY REPUDIATION

In either case, the non-breaching party may suspend her own performance.

The UCC gives the repudiating party the right to retract the repudiation and reinstatement of her rights – unless the innocent party has materially changed position.

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REMEDIES OF THE SELLER OR LESSOR

When The Goods Are in Possession of the Seller or Lessor.• If buyer breaches, seller has the right to:

• Cancel the Contract.• Withhold Delivery.• Resell or Dispose of Goods (Incidental

Damages).

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REMEDIES OF THE SELLER OR LESSOR

When The Goods Are in Possession of the Seller or Lessor.• If buyer breaches, seller has the right to:

• Recover the Purchase Price (or Lease Payment) Due.

• Right to Recover Damages.

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REMEDIES OF THE SELLER OR LESSOR

When The Goods Are in Transit.• If buyer is in breach and the 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.

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REMEDIES OF THE SELLER OR LESSOR

When The Goods Are in Transit.• Requirements for Stopping Delivery:

seller must timely notify the carrier or bailee.

• Seller has the right to stop delivery until:• Buyer obtains possession of the goods.• Carrier/bailee acknowledges buyer’s rights.• Document of title transferred to buyer.

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REMEDIES OF THE SELLER OR LESSOR

When The Goods Are in Possession of the Buyer or Lessee.• Seller has the right to:

•Recover the Purchase Price or Payments Due.

•Right to Reclaim Goods.

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REMEDIES OF THE BUYER OR LESSEE

When the Seller Refuses to Deliver the Goods, buyer has the right to:• (1) Cancel (rescind) the contract.• (2) Obtain goods that have been paid for.• (3) Sue for specific performance. • (4) “Cover”: buyer must act in good faith

and without unreasonable delay. 26

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REMEDIES OF THE BUYER OR LESSEE

When the Seller Refuses to Deliver the Goods, buyer has the right to:• (5) Reply Goods (action to recover

specific goods). • (6) Recover damages (difference

between the contract price and market price).

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REMEDIES OF THE BUYER OR LESSEE

When the Seller or Lessor Delivers Nonconforming 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.

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REMEDIES OF THE BUYER OR LESSEE

When the Seller or Lessor Delivers Nonconforming 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).

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REMEDIES OF THE BUYER OR LESSEE

When the Seller or Lessor Delivers Nonconforming Goods.• CASE 11.3 Fitl v. Strek (2005). Fitl

bought a baseball card from Strek. Two years later learned it was defective. Court held for Fitl and awarded him the purchase price of $17,750.

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LIMITATION OF REMEDIES

Parties can agree to limit remedies, or 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).

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LIMITATION OF REMEDIES

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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