22-1

Remedies for Breach of Sales Contracts

PA ET RHC 22

Every great mistake has a halfway moment, a split second when it can be recalled and perhaps remedied.

Pearl S. Buck, novelistWhat America Means to Me (1943)

22-2

Learning Objectives

• Discuss meaning of liquidated damages and cover, and when UCC allows enforcement

• List and describe UCC remedies for an injured buyer or seller

• Describe damages available to injured buyer, including specific performance

22-3

• Parties may agree to remedies in the contract– Agreed remedy applied in

the event of a breach of contract to reduce risk

– Example: “If delivery is not made by September 1, Seller will pay Buyer $1,000 as liquidated damages.”

Agreements as to Remedies

22-4

• In a liquidated damages clause, parties agree on the amount of damages to be paid to the injured party– Enforced if reasonable amount and actual

damages would be difficult to prove• Example: Baker v. International Record

Syndicate, Inc.

– If not enforceable because amount is a penalty or unconscionable, injured party may recover the actual damages suffered

Liquidated Damages

22-5

• In a limitation or exclusion clause, parties agree to limit either the remedies that the law makes available or the damages that can be covered [2–719(1)]– Limitations commonly placed on liability for

consequential damages– Attempt to limit consequential damages for

injury to a person by consumer goods is prima facie unconscionable [2–719(3)]

Limitation or Exclusion

22-6

Star-Shadow Productions, Inc. v. Super 8 Sync Sound System

• Facts: – Star-Shadow rented a camera and bought film,

but neither film nor camera worked until supplier Super 8 finally resolved problem

– Star-Shadow sued Super 8 for consequential damages and Super 8 pointed to limitation of liability clause: “Limitation of Liability: …Except for such replacement this product is sold without warranty or liability even though defect, damage, or loss is caused by negligence or other fault. . . .”

22-7

• Procedural History and Holding: – Trial court found for Super 8– On appeal, Star-Shadow argued the

limitation of liability clause failed to adequately protect them from damages caused by the defective film

– Appellate court stated: “…fact that Star-Shadow has no protection other than their bargained-for remedy of replacement film does not make the limitation of liability clause unconscionable… affirmed…”

Star-Shadow Productions, Inc. v. Super 8 Sync Sound System

22-8

• If buyer breaches the contract and seller has goods, seller has several remedies: – Cancel the contract [2–703(f)] and

withhold delivery of goods [2–703(a)]– Resell manufactured goods and

recover damages (difference between resale price and price buyer agreed to pay by contract [2–706])

Seller’s Remedies

22-9

• Recover purchase price of goods (must hold goods for buyer)

• Recover damages for rejection or repudiation1. difference between contract price and

current market price for the goods and 2. “profit” that seller lost when buyer did not

go through with the contract [2–708]• See Jewish Federation of Greater Des

Moines v. Cedar Forrest Products Co.

More Seller’s Remedies

22-10

• If buyer is insolvent and has the goods, seller may:– Recover purchase price– Reclaim goods in

possession of buyer• If goods are in transit,

seller may stop shipment

More Seller’s Remedies

22-11

• Seller should select alternative that will minimize loss [2–704(2)]

• Example: Madsen v. Murrey & Sons Co., Inc. – Seller, who did not complete manufacture

of goods on buyer’s repudiation, but rather dismantled and largely scrapped the existing goods, was held not to have acted in a commercially reasonable manner

Duty to Mitigate Damages

22-12

• Under the (CISG), aggrieved buyer has four potential types of remedies when a seller breaches the contract:1. “avoidance” of the contract2. an adjustment in price3. specific performance4. an action for damages

Seller’s Remedies & The CISG

22-13

• If seller breaches the contract, the buyer has several remedies: – Buy other goods (cover) and recover

damages from seller based on any additional expense that buyer incurs in obtaining the goods [2–712]

Buyer’s Remedies

Example: KGM Harvesting Co. v.

Fresh Network

22-14

KGM Harvesting Co. v. Fresh Network

• Facts and Opinion: – California lettuce grower (KGM) and food

broker Fresh Network (FN) did business for years

– Lettuce price skyrocketed and KGM refused to supply FN at very low contract price, but sold to others at a profit

– To satisfy customers, FN bought lettuce on open market & sued KGM for cost differential

– Court found in favor of Fresh Network based on UCC 2-712

22-15

• Recover damages based on difference between contract price and current market price of goods [2–713]

• Recover damages for any nonconforming goods accepted by buyer based on difference in value between what buyer received and what buyer should have received [2–714]

More Buyer’s Remedies

22-16

• Obtain specific performance of the contract where goods are unique and cannot be obtained elsewhere [2–716]

• Recover damages on basis-of-the-bargain calculation for fraud and misrepresentation [2-721]– See Green Wood Industrial Co. v.

Forceman Int’l Development Group, Inc.

More Buyer’s Remedies

22-17

Test Your Knowledge

• True=A, False = B– If buyer refuses to accept conforming

goods, seller may recover damages, such as lost profit

– If an insolvent buyer has the goods, the seller may reclaim the goods from buyer

– If seller breaches the contract by failing to deliver the goods, buyer may “cover” and recover damages

22-18

• Multiple Choice– Widgets agreed to deliver 500 cases of

grommets to ToyCo by Sept. 1. Widgets knew ToyCo needed the grommets to make toys for delivery by Dec. 1. Widgets delivered the order Nov. 29. ToyCo may:a) buy grommets elsewhere to coverb) sue for damagesc) obtain specific performanced) both A and Be) all of the above

Test Your Knowledge

22-19

Thought Question

• Assume Naomi had a car to sell that she knew had been in an accident and repaired. Is it ethical to sell a damaged and repaired car without telling the potential buyer?