Ch 16

Fundamentals of Business Law

Summarized Cases, 8th Ed., and Excerpted Cases, 2nd Ed.

ROGER LeROY MILLER Institute for University Studies Arlington, Texas

GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

Learning Objectives • What are the respective obligations of the parties under a contract for 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? Copyright © 2010 South-Western

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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 lessor or lessor breaches the contract? • In contracts subject to the UCC, are parties free to limit the remedies available to the non-breaching party on a breach of contract? If so, in what ways? Copyright © 2010 South-Western

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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 the accept and pay for conforming goods.

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Obligations of the Seller or Lessor • 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.

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Obligations of the Seller or Lessor • 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.

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The Perfect Tender Rule • Perfect Tender Rule. – Seller has duty to ship/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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Exceptions to Perfect Tender • Agreement of the Parties. • Seller can cure within time for performance. • Substitution of Carriers. • Installment Contracts. • Commercial Impracticability . – Foreseeable vs. Unforeseeable Circumstances. – CASE 16.1 Maple Farms, Inc. v. City School District of Elmira (New York, 1974). Copyright © 2010 South-Western

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Exceptions to Perfect Tender • • • •

Partial Performance. Destruction of Identified Goods. Right of Assurance. Duty of Cooperation. – Cooperative party can suspend performance to non-cooperative party.

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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.

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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.

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Remedies of the Seller or Lessor • If Buyer breaches, and goods are in 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. Copyright © 2010 South-Western

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Remedies of the Seller or Lessor • If Buyer is insolvent or will not perform, and 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. Copyright © 2010 South-Western

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Remedies of the Seller or Lessor • When Goods are in Buyer’s Possession, 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 • If the Seller is in breach of contract, the Buyer has various remedies. • If Seller refuses to deliver the goods, the Buyer has the right to: – Cancel the Contract. – Recover the Goods. – Obtain Specific Performance. – “Cover”. – Recover Damages. Copyright © 2010 South-Western

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Remedies of the Buyer or Lessee • If Seller delivers non-conforming goods, Buyer has the right to: – Reject Goods with Timely Notice. • CASE 16.2 Jauregui v. Bobb’s Piano Sales & Service, Inc. (Florida, 2006). – Revoke Acceptance. – Recover Damages for Accepted Goods. • CASE 16.3 Fitl v. Strek (Nebraska, 2005). Copyright © 2010 South-Western

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Limitation of Remedies • Parties can agree to limit remedies. • Parties can expressly agree to provide additional remedies than available under UCC. • Limits on consequential damages. • Parties can agree that a remedy is exclusive (the only remedy available).

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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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