Remedies
for Breach of Contract and Leases
Overview: the aggrieved party is looking
for remedy to a breach of contract.
SELLER’S or LESSOR’s REMEDIES 4738/4741/
• Goods in the Seller’s Possession: If the buyer breaches the
contract before the goods have been delivered
to the buyer, lessee, or carrier, the seller may have the right to:
(1) Cancel and Sue: As long as the seller notifies
the buyer, the seller may cancel the contract and sue the buyer for breach of contract;
(2) Withhold Delivery: If a buyer has wrongfully
rejected or revoked acceptance, failed to make proper and timely payment, or
repudiated all or part of the contract, the seller can withhold or discontinue
delivery;
(3) Insist on Cash Payment: If the buyer becomes
insolvent, the seller can refuse further delivery unless the buyer pays in cash;
(4) Resell or Dispose of the Goods: The seller can resell or otherwise
dispose of the goods, retaining any profit over the contract price or holding
the buyer liable for any deficiency (loss), plus any incidental damages;
• Note: Any resale or disposal must
be done in a commercially reasonable manner to maximize the value obtained for the goods.
(5) Recover Purchase Price or Lease Payments Due: An unpaid seller can sue to
recover the purchase price or payments due, plus incidental damages, if the
seller is unable to resell or otherwise dispose of the goods in a commercially
reasonable manner (i.e., specially manufactured goods) ;
or
(6) Recover
Damages: If the buyer repudiates a contract or wrongfully refuses to
accept conforming goods, the seller can sue to recover as damages:
(a) the difference between the
contract price and the fair market price of the goods (at the time and place of
tender), plus
incidental damages, or
(b) the seller’ s lost profits,
including a reasonable allowance for overhead and other expenses, if option
“(a)” will not place the seller in the same position he or she would have been
in had the buyer performed.
• Goods in Transit: If the seller has delivered the goods to a carrier or bailee,
but the buyer has
not yet received them, the seller may:
(1) if the buyer
is insolvent, stop the
carrier or bailee from delivering the goods to the
buyer; or
(2) if the buyer
has breached the contract but is not insolvent,
the seller may stop the carrier or bailee from
delivering the goods only if the quantity
shipped is at least a carload, truckload, planeload, or a larger
shipment.
• In order to stop delivery, the seller must timely notify the
carrier or bailee. The seller will bear any costs of
holding or returning goods in transit.
• In this situation, the seller’s right to stop delivery is LOST if:
(i) the buyer obtains possession of the goods;
(ii) the
carrier or bailee acknowledges the buyer/ lessee’s
right to possession; or
(iii) the
buyer possesses the document(s) of title.
• Goods in the Buyer’s Possession: When the buyer breaches a
contract after receiving the goods, the seller may:
(1) Recover the
Price or Payments Due: If the buyer refuses to pay for the goods received, the
seller may sue for the purchase price or payments due, plus incidental damages;
or
(2) Reclaim the
Goods: If the buyer is insolvent the seller
may recover any goods sold on credit:
(a) within 10 days of the buyer’s receipt
(notice how preferential this is versus other creditors); or
(b) at any time if the buyer
misrepresented his or her solvency in writing within 3 months prior to the delivery of the goods.
• However, if the seller elects to reclaim, he
or she will be barred from seeking any other remedy, such as incidental
damages.
BUYER’s and LESSOR’s REMEDIES 4742/4743/4744/4745
• Seller Refuses to Deliver: If the seller refuses to
deliver the goods to the buyer, the buyer may
(1) Cancel the Contract: If the seller or lessor fails to make delivery
or repudiates the contract, the buyer can cancel the contract. Upon notice of cancellation, the buyer is relieved
of any further obligations under the contract, but retains all rights against the seller;
(2) Recover the
Goods: If a buyer has made partial or full payment for identified goods in the
possession of an insolvent seller, the buyer
can recover the IDENTIFIED goods within 10 days by tendering to the seller any
remaining balance of the contract price;
(3) Obtain Specific Performance: When
the goods are unique and any legal remedy will be inadequate, the buyer can
require the seller to perform the contract exactly by tendering the identified
goods to the buyer (here we are dealing with equity issues and where money
damages are inadequate) ;
(4) Right to Cover: IF The contract is repudiated or the seller fails to deliver, the
buyer may, in good faith and without unreasonable delay, purchase or lease substitute goods from another seller (cover) and recover from the
seller any difference between the contract price and the price of the
replacement goods, plus any incidental and consequential damages, less any
costs saved by the breach
(note: the buyer is not required
to cover);
(5) Right
to Replevin: If the buyer can show that he or she is
unable, after a reasonable effort, to obtain cover for the contract goods, the
buyer may replevy (i.e., take or demand possession of)
identified goods subject to the
contract if the seller has repudiated or breached the contract (a.k.a. judicial
seizure); or
(6) Recover Damages: If the seller repudiates a contract or wrongfully refuses to deliver
conforming goods, the buyer can sue to recover the difference between the contract price and the fair
market price of the goods (at the time that the buyer learned of the
breach), plus incidental and consequential damages, less any costs saved.
For example: You have to pay
for Gas at $7.00, the K price was $5.00, you get damages
for $2.00 for this increase in market value.
• Seller Delivers Nonconforming Goods: When the seller delivers
nonconforming goods, the buyer may
(1) Reject the
Goods: If either the goods or the tender of the goods fails to conform
to the contract in any respect, the buyer may reject the goods or, if some of the goods
conform, the buyer may retain the conforming goods and reject the rest;
• Any
rejection must
(i) be made within a reasonable period of time,
(ii) designate defects that should have been apparent on reasonable
inspection, and
(iii) provide
the seller with reasonable notice.
In other words, it
must be TIMELY and a REASON FOR REJECTION IS REQUIRED.
Buyers who reject orders
that remain in their possession have a security
interest in the goods (i.e., any payment already made, storage,
insurance, etc.)
<<NOTE: generally, acceptance precludes the buyer from
the right of rejection, but does NOT preclude the pursuit of other
remedies>>
(2) Revoke
Acceptance: On reasonable notice to the seller, and within a reasonable
period of time after the buyer discovers or should have discovered the grounds
for revocation, the buyer may revoke his or her acceptance of a lot or a
commercial unit if the buyer:
(a) accepted the goods on the reasonable
assumption that any nonconformity would be cured
and it has not been cured within a reasonable time; or
(b) did not discover the nonconformity
prior to acceptance, either because it was not apparent or because assurances
from the seller kept the buyer from inspecting the goods.
However, this
step is not effective until notice is given to seller, and notice must be
within a reasonable time the buyer discovers or should have discovered the
grounds for revocation, and before spoilage of the goods not caused by own defects.
(3) Recover
Damages for Accepted Goods: A buyer who accepts nonconforming goods may
keep the goods and, after reasonable notice to the seller of the defects in the
goods and/or the manner of tender, sue for the difference between the value of the goods as
accepted and their value as
promised in the contract.
LIMITATIONS ON REMEDIES
• Statute of Limitations: An action for breach of contract under the
U.C.C. must be commenced within four years after the injured party knew or should have known of the breach.
• The parties may contractually
agree to reduce this period to not
less
than one year, but may not extend it beyond four years.
• A buyer who accepts nonconforming goods must notify the breaching
party of the breach within a reasonable time to permit the breaching party to cure; the
buyer’s failure to do so will bar any claim for breach.
• Contractual Limitations on Remedies: The parties may
contractually agree to expand or limit the remedies provided
by the U.C.C. The parties may also limit or exclude consequential damages as
long as the limitation or exclusion is not unconscionable, given the relative
bargaining strength of the parties.
Consequential damages can be limited
or excluded. Also, if the parties state
that a remedy is exclusive, that is the SOLE remedy.
LEMON LAWS
·
LEMON Laws: Enacted because the UCC remedies were
generally not effective. Assuming a
vehicle under warranty has a defect that affects the vehicles value or use, and
the vehicle is not repaired the person is entitled to a new vehicle,
replacement of defective parts, or return of consideration paid.
·
However, the buyer must notify the dealer or manufacturer of the
problem, they just can’t leave it at the dealer.
o
Must give them an opportunity to fix it (approx 4 times)
o
Arbitration is usually required.