PowerPoint Slides to Accompany
BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman
Chapter 21
Remedies for Breach of
Sales and Lease Contracts
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by Prentice-Hall. All rights reserved.
Introduction
Obligation – An action a party to a sales or
lease contract is required by law to carry out.
 Breach – Failure of a party to perform an
obligation in a sales or lease contract.
 When one party breaches the lease or sales
contract, the UCC provides the injured party
with a variety of pre-litigation and litigation
remedies.

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21 - 2
Seller’s and Lessor’s Obligations

Tender of Delivery
The obligation of the seller to transfer and
deliver goods to the buyer or lessee in
accordance with the sales or lease contract.
 The parties may agree as to the time, place,
and manner of delivery.

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21 - 3
Seller’s and Lessor’s Obligations
(continued)

Place of Delivery
Many sales and lease contracts state where
the goods are to be delivered.
 If the contract does not expressly state where
the delivery will take place, the UCC will
stipulate place of delivery on the basis of
whether a carrier is involved.

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21 - 4
Seller’s and Lessor’s Obligations
(continued)

Bailee – a holder of goods who is not a seller or
buyer.



e.g., a warehouse
Shipment Contract – a sales contract that requires
the seller to send the goods to the buyer, but not a
specifically named destination.
Destination Contract – a sales contract that
requires the seller to deliver the goods to the
buyer’s place of business or another specified
destination.
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21 - 5
Seller’s and Lessor’s Obligations
(continued)

Perfect Tender Rule


The seller or lessor is under a duty to
deliver conforming goods.
If the goods or tender of delivery fails in any
respect to conform to the contract, the buyer
or lessee may opt either to:
1. Reject the whole shipment,
2. Accept the whole shipment, or
3. Reject part and accept part of the shipment
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21 - 6
Buyer’s and Lessee’s Obligations

Right of Inspection
Unless otherwise agreed, the buyer or lessee
has the right to inspect goods that are
tendered, delivered, or identified to the sales
contract prior to accepting or paying for them.
 If the goods conform to the contract, the
buyer pays for the inspection.

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21 - 7
Buyer’s and Lessee’s Obligations
(continued)

Payment
Goods that are accepted must be paid for.
 Unless the parties agree otherwise, payment
is due from a buyer when and where the
goods are delivered even if the place of
delivery is the same as the place of shipment.

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21 - 8
Buyer’s and Lessee’s Obligations
(continued)

Acceptance
Occurs when the buyer or lessee takes any
of the following actions after a reasonable
opportunity to inspect the goods:
1. Signifies to the seller or lessor in words or
by conduct that the goods are conforming or
that the buyer or lessee will take or retain
the goods despite their nonconformity, or

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21 - 9
Buyer’s and Lessee’s Obligations
(continued)

Acceptance (continued)
2. Fails to effectively reject the goods within a

reasonable time after their delivery or tender
by the seller or lessor.
Acceptance also occurs if a buyer acts
inconsistently with the seller’s ownership
rights in the goods.
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21 - 10
Buyer’s and Lessee’s Obligations
(continued)

Revocation of Acceptance
A buyer or lessee who has accepted goods
may subsequently revoke acceptance if:
1. The goods are nonconforming,
2. The nonconformity substantially impairs the
value of the goods to the buyer or lessee,
and

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21 - 11
Buyer’s and Lessee’s Obligations
(continued)

Revocation of Acceptance (continued)
3. One of the following factors is shown:
a) The seller’s or lessor’s promise to seasonably remedy
the nonconformity is not met,
b) The goods were accepted before the nonconformity
was discovered and the nonconformity was difficult to
discover, or
c) The goods were accepted before the nonconformity
was discovered and the seller or lessor assured the
the buyer or lessee that the goods were conforming
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21 - 12
Adequate Assurance of Performance

A party to a sales or lease contract may
demand an adequate assurance of
performance from the other party if there is
an indication that the contract will be
breached by that party.
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21 - 13
Anticipatory Repudiation
The repudiation of a sales or lease contract
by one of the parties prior to the date set for
performance.
 Mere wavering on performance does not
meet the test for anticipatory repudiation.

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21 - 14
Seller’s and Lessor’s Remedies

Right to Withhold Delivery
Delivery of the goods may be withheld if the
seller or lessor is in possession of them when
the buyer or lessee breaches the contract.
 This remedy if the buyer or lessee:

 Wrongfully
rejects or revokes acceptance of
the goods,
 Fails to make payment when due, or
 Repudiates the contract.
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21 - 15
Seller’s and Lessor’s Remedies
(continued)

Right to Stop Delivery of Goods in Transit
In Transit – a state in which goods are in the
possession of a bailee or carrier and not in
the hands of the buyer, seller, lessee, or
lessor.
 A seller or lessor may stop delivery of goods
in transit if he or she learns of the buyer’s or
lessee’s insolvency.

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21 - 16
Seller’s and Lessor’s Remedies
(continued)

Right to Stop Delivery of Goods in Transit
(continued)

The same remedy is available if the buyer or
lessee:
 Repudiates
the contract,
 Fails to make payment when due, or
 Otherwise gives the seller or lessor some
other right to withhold or reclaim the goods.
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21 - 17
Seller’s and Lessor’s Remedies
(continued)

Right to Reclaim Goods
The right of a seller or lessor to demand the
return of goods from the buyer or lessee
under specified situations.
 To exercise the right of reclamation, the seller
or lessor must send the buyer or lessee a
written notice demanding return of the goods.

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21 - 18
Seller’s and Lessor’s Remedies
(continued)

Right to Dispose of Goods
If the buyer or lessee breaches or repudiates
the seller or lease contract before the seller or
lessor has delivered the goods, the seller or
lessor may resell or release the goods and
recover damages from the buyer or lessee.
 This right also arises if the seller or lessor has
reacquired the goods after stopping them in
transit.

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21 - 19
Seller’s and Lessor’s Remedies
(continued)

Right to Recover the Purchase Price or Rent
 A seller or lessor may recover the contractedfor purchase price or rent from the buyer or
lessee if the buyer or lessee:
 Fails
to pay for accepted goods,
 Breaches the contract and the seller or lessor
cannot dispose of the goods, or if
 The goods are damaged or lost after the risk
of loss passes to the buyer or lessee.
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21 - 20
Seller’s and Lessor’s Remedies
(continued)

Right to Recover Damages for Breach of
Contract

A seller or lessor may recover damages
measured as the difference between the
contract price (or rent) and the market price
(or rent) at the time and place the goods were
to be delivered, plus incidental damages, from
a buyer or lessee who repudiates the contract
or wrongfully rejects tendered goods.
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21 - 21
Seller’s and Lessor’s Remedies
(continued)

Right to Recover Damages for Breach of
Contract (continued)

The seller or lessor may recover lost profits,
plus an allowance of overhead and incidental
damages, from the buyer or lessee if the
recovery of damages would be inadequate to
put the seller or lessor in as good a position
as if the contract had been fully performed by
the buyer or lessee.
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21 - 22
Seller’s and Lessor’s Remedies
(continued)

Right to Cancel the Contract

A seller or lessor may cancel a sales or lease
contract if the buyer or lessee:
 Rejects
or revokes acceptance of the goods,
 Fails to pay for the goods, or
 Repudiates the contract in part or in whole.
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21 - 23
Summary: Seller’s and Lessor’s Remedies
(1 of 2)
Possession of Goods at
Time of Buyer’s Breach
Goods in the possession of
the seller
Seller’s or Lessor’s Remedies





Withhold delivery of the goods.
Demand payment in cash if the buyer is insolvent.
Resell or re-lease the goods and recover the
difference between the contract or lease price and
the resale or re-lease price.
Sue for breach of contract and recover damages.
Cancel the contract.
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21 - 24
Summary: Seller’s and Lessor’s Remedies
(2 of 2)
Possession of Goods at
Time of Buyer’s Breach
Goods in the possession of
a carrier or bailee
Goods in the possession of
the buyer
Seller’s or Lessor’s Remedies



Stop goods in transit:

Carload, truckload, planeload, or larger shipment
if the buyer is solvent.

Any size shipment if the buyer is insolvent.
Sue to recover the purchase price or rent.
Reclaim the goods.
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21 - 25
Buyer’s and Lessee’s Remedies

Right to reject nonconforming goods or
improperly tendered goods

Right to recover goods from an insolvent
seller or lessor

Right to obtain specific performance

Right to cover

Right to replevy goods
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21 - 26
Buyer’s and Lessee’s Remedies
(continued)

Right to cancel the contract

Right to recover damages for non-delivery or
repudiation

Right to recover damages for accepted
nonconforming goods
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21 - 27
Summary: Buyer’s and Lessee’s Remedies
(1 of 2)
Situation
Buyer’s or Lessee’s Remedy
Seller or lessor refuses to
deliver the goods or delivers
the nonconforming goods that
the buyer or lessee does not
want.





Reject nonconforming goods
Revoke acceptance of nonconforming goods
Cover
Sue for breach of contract and recover damages
Cancel the contract
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21 - 28
Summary: Buyer’s and Lessee’s Remedies
(2 of 2)
Situation
Buyer’s or Lessee’s Remedy
Seller or lessor tenders
nonconforming goods and the
buyer or lessee accepts them.
Seller or lessor refuses to
deliver the goods and the
buyer or lessee wants them





Sue for ordinary damages
Deduct damages from the unpaid purchase price
Sue for specific performance
Replevy the goods
Recover the goods from an insolvent seller or
lessor
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21 - 29
UCC Statute of Limitations
A rule that provides that an action for breach
of any written or oral sales or lease contract
must commence within four years after the
cause of action accrues.
 The parties may agree to reduce the
limitations period to one year.

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21 - 30
Agreements Affecting Remedies
The parties to a sales or lease contract may
agree on remedies in addition to or in
substitution for the remedies provided by the
UCC.
 Liquidated Damages:

Damages that will be paid upon a breach of
contract
 Established in advance

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21 - 31