CHAPTER
SEVENTEEN
The Sales Contract: Performance,
Breach, and Remedies for Breach
Performance of the Sales Contract
• Usually the seller is the first party to perform in a UCC
sales contract, followed by the buyer.
• If there is a dispute on the contract:
• The UCC gap filler provisions can fill in missing terms.
• Trade customs can also be used to fill in gaps.
• Further, the UCC requires that each party act in GOOD
FAITH to complete its portion of the contract.
• Additionally, failure to cooperate in carrying out the contract
can be viewed as a breach of contract.
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Obligations of The Seller
• The seller has the following obligations:
– Provide goods that conform to the description in the contract
– Properly notify the buyer that the goods are ready for delivery,
and make the goods available to the buyer
• Delivery will be based upon the agreement between the seller and
the buyer.
• Often goods are made available to the buyer at the seller’s place of
business or residence.
• If the goods are available at a location different from the seller’s
place of business or residence, that is the place for delivery.
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Obligations of the Seller
(continued)
• When the seller is required to ship the goods, proper
delivery occurs when the seller places the goods in the
possession of a third-party carrier.
• If the seller is to deliver the goods, delivery occurs when
the goods are delivered to the destination point and the
buyer is notified of their arrival.
• If the seller does not notify the buyer and an
unreasonable delay or loss occurs, the buyer is entitled
to reject the shipment.
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Perfect Tender Rule
• The perfect tender rule obligates the seller to
tender goods that exactly meet the description in
the contract.
• If the perfect tender rule is not met, the buyer
has three options:
• Reject all the goods
• Accept all the goods
• Accept part of the goods and reject the rest
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Obligations of the Buyer
• The buyer’s obligations arise after the seller’s
duty under the contract is completed.
• The buyer has the obligation to inspect the
goods.
– Goods are usually inspected before the buyer pays
for them.
– If goods are COD, the buyer must pay before
inspection.
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Obligations of the Buyer
(continued)
• Once there is a valid tender of delivery, a buyer or lessee
who takes any of the following actions will have shown
his or her acceptance:
• Signifies to the seller or lessor in words or by conduct that
the goods conform to the contract, or, if the goods are
nonconforming, that they will be accepted anyway
• Fails to reject the goods in a reasonable time
• Acts inconsistently with the seller’s ownership rights in the
delivered goods
– The seller has a right to cure a defective performance as long
as he or she does so within a reasonable time.
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Obligations of the Buyer
(continued)
• The buyer must reject the goods within a reasonable
time and must take reasonable steps to notify the seller
of his or her intentions.
• A buyer who rejects has the obligation to hold the goods
with reasonable care.
• If the seller fails to give instructions, the buyer may:
• Place the rejected goods in storage
• Ship them back to the seller
• Resell the goods with the proceeds going to the seller
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Buyer Remedies for Breach
by the Seller
• When a seller breaches a sales contract, the
buyer may pursue the following remedies:
–
–
–
–
Sue for breach of warranty
Cancel the contract and cover
Cancel the contract and sue for damages
Seek specific performance or replevin
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Sue for Breach of Warranty
• A buyer who receives nonconforming goods may
accept them and then recover damages for breach of
warranty.
• A warranty is a guarantee by the seller that
• The goods are not defective, and
• The goods are fit for their intended purpose.
• Warranty suits can be used after inspection and
acceptance when the goods are later found to be
nonconforming.
• The buyer can usually recover damages for breach of
warranty. Usually damages are the amount of cash
necessary to put the buyer in the same position as if the
contract had been performed properly.
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Cancel the Contract and Cover
• When nonconforming goods are legitimately
rejected, the buyer may cancel the contract and
recover any amount of the purchase price
already paid.
• Then the buyer can purchase substitute goods
elsewhere. If there is a difference between the
contract price and the “cover price” (price paid to
obtain the goods on the market), the buyer can
recover this amount from the seller.
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Cancel the Contract and Sue
for Damages
• If the seller breaches, and the buyer may also:
• Recover any part of the purchase price paid, and
• Sue for damages for non-delivery.
• Damages are the difference between the contract price
and the market price at the point the buyer learns of the
breach, plus any expenses.
• A buyer that suffers no real damages may still recover
nominal damages (usually $1).
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Seek Specific Performance
or Replevin
• For a court to order specific performance, the subject
matter of the contract must be of a special, unique
nature.
• For example, A painting by Picasso is unique.
• The UCC also includes goods that cannot be obtained elsewhere in
the definition of unique.
• Replevin – if the buyer withholds goods that are not
unique but have been identified and ordered and the
goods cannot be obtained elsewhere, the buyer can
obtain a court order of replevin, which orders the seller to
deliver the goods to the buyer.
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Remedies Available to the Seller
• A buyer breaches by rejecting conforming goods
or failing to pay for the goods. The seller may:
•
•
•
•
•
•
Cancel the contract
Resell the goods and sue for damages
Sue the buyer for the purchase price
Sue the buyer for damages for nonacceptance
Withhold delivery of the goods
Reclaim the goods from the buyer
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Remedies Available to the Seller
(continued)
• Cancel the contract:
– The seller rescinds all performance due to the buyer
under the contract. The seller may also pursue any of
the other remedies the UCC offers.
• Resell the goods and sue for damages:
– The seller can resell the goods and sue for the
difference between the contract price and the resale
price plus any expenses of the sale.
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Remedies Available to the Seller
(continued)
• Sue to recover the purchase price:
– If the seller is in possession of the goods and is
unable to sell the goods elsewhere, the seller may
hold the goods and sue for the purchase price.
– The seller may also use this remedy if the buyer
accepted the goods and then refused to pay for them.
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Remedies Available to the Seller
(continued)
• Sue to recover damages for nonacceptance.
– If the buyer refuses to accept goods, the seller may
choose to sue the buyer for damages for not
accepting the goods.
• This is usually the remedy chosen if the seller is unable to
sell the goods or prefers not to sell them.
• Damages are the difference between the market price at the
time and place of delivery and the unpaid contract price, plus
expenses of the breach.
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Remedies Available to the Seller
(continued)
• The seller may legally withhold delivery if the seller
discovers the before delivery that the buyer is insolvent
(broke).
• The seller may reclaim goods if, after the delivery, the
seller discovers that the buyer is insolvent.
• The demand must be made within ten days of the sale.
• The seller may not reclaim if the goods have been sold to a
third party in GOOD FAITH.
• The seller may sue the buyer for damages.
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