Remedies for Breach of
Sales and Lease Contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Tender of Delivery
• Transfer or delivery of goods to the
buyer or lessee in accordance
with sales or lease contract
• Requires:
– Conforming goods to be put aside
and held for buyer or lessee
– Notification be made to buyer or
lessee
– Goods must be tendered in single
delivery unless otherwise noted in
contract
– Payment due upon delivery unless
otherwise noted
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Place of Delivery
• Contract usually states place
and time of delivery
• If contract silent, place is
seller’s or buyer’s place of
business
• If they have no place of
business, it is their residence
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Place of Delivery (continued)
• If goods at warehouse and
are to be delivered without
being moved, delivery
occurs when seller:
– Tenders buyer negotiable
document of title
– Produces acknowledgement
from bailee of buyer’s right of
possession
– Tenders nonnegotiable
document of title or written
direction to bailee to deliver
goods to buyer
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Delivery in Carrier Cases
• Shipment Contracts
– Do not name destination
• Seller must put goods in carrier’s
possession and contract for delivery
• Obtain and deliver all documents
necessary for buyer to obtain
possession
• Notify buyer of shipment
• Destination Contracts
– Names destination
– Delivery must be made at reasonable
time and in reasonable manner
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Perfect Tender Rule
• If goods fail to conform,
buyer/lessee may:
– Reject entire shipment
– Accept whole shipment, or
– Reject part and accept part
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Exceptions
• Agreement of Parties
– Parties may contract to limit perfect
tender rule
• Defective or nonconforming goods
may be rejected
• Seller/lessor may replace
nonconforming goods
• Buyer/lessee accepts nonconforming
goods with compensation
• Substitution of Carriers
– Commercially reasonable carrier may
be substituted if agreed-upon delivery
manner fails or becomes unavailable
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Cure
• UCC gives seller/lessor
opportunity to cure
– time has not expired
– must notify buyer/lessee of
intentions
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Installment Contract
– Goods delivered and accepted at
different times
– Requires specific knowledge
– Seller can only reject entire
contract if default impairs value of
entire contract
– Seller can reject non-conforming
shipments
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Destruction of Goods
• Contract void
– If goods are totally destroyed
through no fault of either party
before risk of loss passes
– Both parties excused from
performance
• Contract voidable
– If goods are partially destroyed
through no fault of either party
before risk of loss passes
– Buyer may inspect goods and
choose to void the contract
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Buyer’s and Lessee’s Performance
• Once seller/lessee has tendered
delivery, buyer/lessee is obligated to
accept and pay as per sales/lease
contract.
• If contract silent, UCC controls.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right of Inspection
• Buyer has the right to inspect
goods before paying for
them
• Buyer may reject
nonconforming goods
• Parties may agree as to time
and place of inspection
• If contract silent, inspection
must occur at reasonable
time and place
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Payment
– Due from buyer when and
where goods delivered
– Contract may set terms
– Can be paid in any
manner acceptable in
ordinary course of business
• If cash required, buyer must
be given an extension to
secure cash
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Acceptance
• Contract is created when the
offeree sends an acceptance to
the offeror, not when the offeror
receives the acceptance.
• The UCC permits acceptance by
any reasonable manner or
method of communication.
• Acceptance occurs if buyer acts
inconsistently with seller’s
ownership rights.
• Buyers/lessees must accept
“commercial unit”.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Revocation of Acceptance
• Buyer can revoke acceptance if:
– Goods are non-conforming
– The nonconformity substantially
impairs the value of the goods
– The seller’s promise to timely cure is
not met
– Goods were accepted before nonconformity was discovered and the
nonconformity was difficult to
discover
– The goods were accepted before the
nonconformity was discovered and
the seller/lessor assured the
buyer/lessee that the goods were
conforming
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right to Withhold Delivery
• Delivery of goods may be
withheld if:
– Seller/lessor is in possession of goods
when buyer/lessee breaches contract
– Buyer/lessee fails to make payment
when due
– Buyer/lessee repudiates contract
• If part of the shipment has been
delivered at time of breach,
seller/lessor may withhold delivery
of remainder.
• If seller/lessor discovers that
buyer/lessee is insolvent, they may
require cash payment.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right to Stop Goods in Transit
• Seller/lessor may stop
shipment in transit if:
– He discovers buyer’s/lessee’s
insolvency
– Buyer/lessee repudiates
shipment
– Buyer/lessee fails to make
payment when due
• Seller/lessor must give
sufficient notice to allow
bailee to prevent delivery
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right to Reclaim Goods
• Seller/lessor may reclaim
goods if:
– The buyer misrepresented their
solvency in writing within 3
months before delivery
– Paid for goods with a check
that bounced
– If the lessee is in default of the
contract
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right to Dispose of Goods
• Must be made in good faith
• Seller/lessor must give notice
to buyer/lessee of intention
– Notice not required with
perishable goods or goods that
will quickly decline in value
• Seller/lessor may recover
damages
• Profit does not revert to
original buyer
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Right to Recover the Purchase
Price or Rent
• Seller/lessor may sue to
recover if:
– Buyer/lessee fails to pay as due
– Buyer/lessee breaches contract
after goods have been
identified and seller/lessor
cannot resell or dispose of them
– Goods are damaged or lost
after risk passes to buyer/lessee
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Additional Rights
• Seller/lessor may sue to
recover damages caused by
buyer’s or lessee’s breach.
• Seller/lessor may recover lost
profits.
• Seller/lessor may cancel
contract if buyer/lessee
breaches.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Buyer’s and Lessee’s Remedies
• Buyer may reject nonconforming goods or
improperly tendered goods.
– May reject the whole, accept the whole, or
accept any commercial unit and reject the rest
– Must reject within a reasonable time period.
– Must follow reasonable instructions for return of
goods.
• If goods are perishable, must make
reasonable effort to sell them on seller’s
behalf.
– Buyer entitled to reimbursement for shipping,
holding, storage expenses.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Buyer’s and Lessee’s Remedies
(continued)
• If buyer makes full or partial
payment before goods are
received and seller/lessor
becomes insolvent within ten days
of receiving payment, they can
recover goods .
• If goods are unique, buyer can
obtain specific performance
• Buyer/lessor may cover.
• Buyer/lessee has right to replevy
goods, if they are wrongfully
withheld.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Buyer’s and Lessee’s Remedies
(continued)
• Buyer/lessee may cancel contract
if seller/lessor fails to deliver
conforming goods or repudiates
contract
– Buyer/lessee may recover damages
• Buyer/lessee may recover
damages for accepted
nonconforming goods
• Buyer/lessee may recover
damages for loss from seller’s
breach
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Additional Performance Issues
• Assurance of Performance
– An adequate assurance of due
performance may be demanded
in writing by either party.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Anticipatory Repudiation
– Occurs when a party
repudiates the contract before
performance is required.
– Wavering is not sufficient.
– Aggrieved party may:
• Await performance for a
commercially reasonable time.
• Treat contract as breached at
time of anticipatory repudiation.
• Indicate repudiation is considered
final.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Statute of Limitations
– The UCC provides that an action
for breach of any written or oral
sales or lease contract must
commence within four years after
the cause of the action accrues.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Agreements Affecting Remedies
• Parties may agree to
remedies in addition to those
available under the UCC.
• UCC allows for liquidated
damages as a substitute for
actual damages.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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