Chapter 16: Performance and Breach of
Sales and Lease Contracts
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Learning Objectives
• What are the respective obligations of
the parties under a contract for
sale/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 repudiates the contract prior to
the time of 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?
• 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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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.
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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 (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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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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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.
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Exceptions to Perfect Tender
• Installment Contracts.
– Only if substantially impairs value of
installment.
• Commercial Impracticability.
– Extends only to unforeseeable circumstances.
Case 16.1 Maple City Farms, Inc. v.
City School District of Elmira.
Maple City sued to cancel the agreement based on
23% increase in cost of milk. Court held the
increase was foreseeable and not impracticable.
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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.
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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.
• Partial Acceptance.
– Buyer does not have to accept less than a
single commercial unit.
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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.
• In either case, the non-breaching party may
suspend her own performance.
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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.
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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.
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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.
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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 16.2 Houseman v. Dare.
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.
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Remedies of the Buyer or Lessee
• If seller refuses to deliver the goods,
the buyer has the right to:
– Reply Goods (action to recover specific
goods).
– Recover damages (difference between the
contract price and market price).
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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.
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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 16.3 Fitl v. Strek.
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.
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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.
• Exclusive Remedies: Parties can agree
that a particular remedy is exclusive (the
only remedy available).
• Limitations on Consequential
Damages.
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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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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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