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Performance and Breach of Sales and Lease Contracts
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The five Learning Objectives below are designed to help improve your understanding of the chapter. After reading this chapter, you should be able to answer the following questions:
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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Buyer and seller can alter their obligations and rights by an agreement. Under UCC, they can amend the damages, in a contract; alteration in remedies is an addition. It is also possible to maintain a selected remedy. However if the selected remedy is not succeeded then the buyer is titled to the existing remedies.
Limitation of the Remedies: Damages that are predictable are referred as consequential damages. These damages are limited or excluded under UCC. If the buyer is consumer, then the personal damage from the goods is not deliberate. But the damages are not limited if it involves property damage and financial losses.
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Remedies of the Buyer. Woodridge USA Properties, LP, bought eighty-seven commercial truck trailers under a contract with Southeast Trailer Mart (STM), Inc. Southeastern Freight Lines, Inc., owned the lot in Atlanta, Georgia, where the trailers were stored. Gerald McCarty, an independent sales agent who arranged the deal, showed Woodridge the documents of title. They did not indicate that Woodridge was the buyer. Woodridge asked McCarty to hold the documents and sell the trailers for Woodridge. Within three months, all of the trailers had been sold, but McCarty had not given the proceeds to Woodridge. Woodridge-without mentioning the title documents-asked STM to refund the contract price. STM refused. Later, Woodridge filed a suit in a federal district court against STM, claiming that the title documents had been defective and seeking damages. Does Woodridge have a right to recover damages for accepted goods? What would be the measure of the damages? Explain. [ Woodridge USA Properties , L.P v. Southeast Trailer Mart , Inc., ____ F.3d ____ (11th Cir. 2011)]
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Facts:
The US property W bought 87 commercial trailers from company S. The person GM was the independent sales agent who showed the documents of title to W, as per these documents W was not the owner of the trailers. Later W asked the person GM for selling these trailers, GM sold all the trailers, but did not reimburse proceedings to W. W filed a suit against S for refunding the price of a contract without mentioning the titles of the documents. The company S refused to pay the price and W filed a case.
Remedies of the buyers:
If the contract is breached by the seller then the buyer has a number of remedies under UCC (Uniform commercial code). But these remedies are dependent on the situations that exist at the time of the breach. The remedies are right to rescind the contract if the goods are not delivered by the sellers, right to obtain or receive the goods at the time of insolvency, the right to recover damages and, others.
Decision:
Right to recover damages for the goods that have been accepted:
Any buyer who has accepted the goods that are non-confirmed has the right to keep those goods and also recover the damages that have been caused by the breach of the contract. For this, it is the duty of the buyer that he inform the seller about the breach within reasonable time period. If the buyer fails to give notice to the seller then the remedies are lost.
In this case, W entered into the contract with the company S and did not inform about the breach done by the person GM at a reasonable time. Also, GM is an independent agent who is not related with company S. Thus, W does not right to recover damages goods that have been accepted.
Generally, the measure of the damages for non-delivery of goods is considered as the difference between the value of goods that are accepted and the value of the goods if they have been delivered on time. In this case, W has received the goods on time. Thus, there will be no measures of damages. Thus, it can be concluded that W does not have right to recover damages.
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Acceptance. In April 2007, Stark, Ltd., applied for credit and opened an account with Quality Distributors, Inc., to obtain snack foods and other items for Stark's convenience stores. For three months, Quality delivered the goods and Stark paid the invoices. In July, Quality was dissolved, and its assets were distributed to J. F. Hughes Co. Hughes continued to deliver the goods to Stark, which continued to pay the invoices until November, when Stark began to experience financial difficulties. By January 2008, Stark owed Hughes $54,241.77. Hughes then dealt with Stark only on a collect-on-delivery basis until Stark's stores closed in 2009. Hughes filed a lawsuit in a state court against Stark and its owner to recover amounts due on unpaid invoices. To successfully plead its case, Hughes had to show that there was a contract between the parties. One question was whether Stark had manifested acceptance of the goods delivered by Hughes. How does a buyer manifest acceptance? Was there an acceptance in this case?
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A buyer manifests acceptance of the goods delivered to him by doing any of the following:
a) Having had a reasonable opportunity to inspect the delivered goods, if the buyer indicates to the seller that the goods either are acceptable or are conforming in spite of their nonconformity.
b) Having had a reasonable opportunity to inspect the delivered goods, if the buyer fails to reject the goods within a reasonable time period.
c) In a sales contracts, if the buyer acts in any inconsistent manner with the seller's ownership such as using or reselling the goods.
Yes , acceptance does manifest in the case of Hughes delivering goods to Stark.
Stark did not reject the goods even after the transfer of ownership to J.F. Hughes. He continued to accept the delivery, and thus, the acceptance is presumed.
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Breach and Damages. Before Chad DeRosier could build a house on his undeveloped property, he needed to have some fill dirt dumped onto the land. Utility Systems of America, Inc., was doing roadwork nearby, and DeRosier asked Utility if it would like to dump extra fill dirt onto his property. Utility said it would, and DeRosier got the necessary permits. The permit was for 1,500 cubic yards of fill dirt, which was how much DeRosier needed. DeRosier gave Utility a copy of the permit. Later, DeRosier found a mountain of fill dirt on his land-6,500 cubic yards. So 5,000 cubic yards of fill dirt had to be removed. Utility denied responsibility but said that it would remove the fill dirt for $9,500. DeRosier sued and hired another company to remove the fill dirt and to do certain foundation work. He paid $46,629 to that contractor. The district court held that Utility had breached its contract and ordered it to pay DeRosier $22,829 in general damages, and $8,000 in consequential damages. Utility appealed. Because Utility charged nothing for the fill dirt, was there a breach of contract? If a breach occurred, would the damages be greater than $9,500? Could consequential damages be justified? Discuss. [ DeRosier v. Utility Systems of America , Inc., 780 N.W2d 1 (Minn.App. 2010)]
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the perfect tender rule? What are some important exceptions to this rule that apply to sales and lease contracts?
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance?
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ISSUE SPOTTERS
Brite Images, Inc. (BI), agrees to sell Catalog Corporation (CC) five thousand posters of celebrities, to be delivered on May 1. On April 1, BI repudiates the contract. CC informs BI that it expects delivery. Can CC sue BI without waiting until May 1? Why or why not? (See pages 330-331.)
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ISSUE SPOTTERS
Country Fruit Stand orders eighty cases of peaches from Down Home Farms. Without stating a reason, Down Home untimely delivers thirty cases instead of eighty. Does Country have the right to reject the shipment? Explain. (See page 323.)
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Case Problem with Sample Answer Flint Hills Resources, Li; a crude oil refiner, agreed to buy "approximately 1,000 barrels per day" of Mexican natural gas condensate from JAG Energy Inc., an oil broker. Four months into the contract, Pemex, the only authorized seller of freshly extracted Mexican condensate, warned Flint Hills that some companies might be selling stolen Mexican condensate. Fearing potential criminal liability, Flint Hills refused to accept more deliveries from JAG without proof of the title to its product. JAG promised to forward documents showing its chain of title. When, after several weeks, JAG did not produce the documents, Flint Hills canceled their agreement. JAG filed a suit in a federal district court against Flint Hills, alleging breach. Did Flint Hills have a right to demand assurance of JAG's title to its product? If so, did the buyer act reasonably in exercising that right? Explain. [ Flint Hills Resources , LP v. JAG Energy , Inc., 559 F3d 373 (5th Cir. 2009)]
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Breach. Cummings ordered two model X Super Fidelity speakers from Jamestown Wholesale Electronics, Inc. Jamestown shipped the speakers via United Parcel Service, C.O.D. (collect on delivery), although Cummings had not requested or agreed to a C.O.D. shipment of the goods. When the speakers were delivered, Cummings refused to accept them because he would not be able to inspect them before payment. Jamestown claimed that it had shipped conforming goods and that Cummings had breached their contract. Had Cummings breached the contract? Explain.
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
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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Anticipatory Repudiation. Moore contracted in writing to sell her 2002 Ford Taurus to Hammer for $8,500. Moore agreed to deliver the car on Wednesday and Hammer promised to pay the $8,500 on the following Friday On Tuesday, Hammer informed Moore that he would not be buying the car after all. By Friday, Hammer had changed his mind again and tendered $8,500 to Moore. Although Moore had not sold the car to another party, she had refused the tender and to deliver. Hammer claimed that Moore had breached their contract. Moore contended that Hammer's repudiation released her from her duty to perform under the contract. Who is correct, and why?
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GFI, Inc., a Hong Kong company, makes audio decoder chips, one of the essential components used in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that even though the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
1. Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or why not?
2. Does the substitution of carriers for the third shipment constitute a breach of the contract by GFI? Explain.
3. Suppose that the silicon used for the chips becomes unavailable for a period of time and that GFI cannot manufacture enough chips to fulfill the contract but does ship as many as it can to Egan. Under what doctrine might a court release GFI from further performance of the contract?
4. Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not?
DEBATE THIS If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
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?
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The five Learning Objectives below are designed to help improve your understanding of the chapter. After reading this chapter, you should be able to answer the following questions:
What are the respective obligations of the parties under a contract for the sale or lease of goods?
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Remedies. Genix, Inc., has contracted to sell Larson five hundred washing machines of a certain model at list price. Genix is to ship the goods on or before December 1. Genix produces one thousand washing machines of this model but has not yet prepared Larson's shipment. On November 1, Larson repudiates the contract. Discuss the remedies available to Genix in this situation. (See page 331.)
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What are the respective obligations of the parties under a contract for the sale or lease of goods?
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Answer:
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What remedies are available to a seller or lessor when the buyer or lessee breaches the contract?
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The five Learning Objectives below are designed to help improve your understanding of the chapter. After reading this chapter, you should be able to answer the following questions:
What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance?
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Answer:
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