Sales and Leases: Performance and Breach

1. 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

2. 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?

3. 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?

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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).

17. 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.

18. 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.

19. 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.

20. 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.