CHAPTER 18
PERFORMANCE AND REMEDIES
DAVIDSON, KNOWLES & FORSYTHE
Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
PERFORMANCE OF A SALES CONTRACT

General Obligations.
– The topics of title and risk of loss must be
–
–
–
–
examined.
Act in good faith.
Any merchant is obligated to act in a
commercially reasonable manner.
Buyer must accept and pay for goods delivered.
Seller must transfer and deliver conforming
goods to the buyer.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
PERFORMANCE OF A SALES CONTRACT

General Obligations.
– Conforming goods are goods that are within the
description of the goods as out in the contract.
– Payment by the buyer will be made at the time
and place of delivery.
– The manner of payment will be spelled out in
the contract.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
PERFORMANCE OF A SALES CONTRACT

Cooperation.
– Parties are required to cooperate with one
another in performance of their duties.
– Failure to cooperate or interference with the
performance of the other party can be treated as
a breach of contract or as an excuse for a
delayed performance.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S DUTIES

Tender delivery of conforming goods
according to the terms of the contract.
 Normally the contract specifies when and
where goods are to be available.
 If not specified seller required to put and
hold goods at buyer’s disposition.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S DUTIES

Notify buyer they are available.
 Tender at reasonable time and place.
 Buyer must provide facilities suitable for
receiving the goods.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S DUTIES

Five possible ways delivery can occur:
– Buyer takes goods from seller.
– Seller takes goods to buyer.
– Seller ships goods to buyer by common carrier.
– Goods are in the hands of a third person
(bailee), and no documents of title are involved.
– Goods are in the hands of bailee, seller is to
deliver document of title to buyer.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
INTERVENING RIGHTS
Once seller’s duties have been performed.
 Focus of sales contract shifts to buyer’s
duties.
 Buyer as an intervening right to inspect for
conformity of goods.
 Seller may have right to cure.
 Only after these intervening rights have
been exercised/waived does duty of buyer
to perform arise.

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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
INTERVENING RIGHTS

Inspection.
– Empowers buyer to inspect the goods in any
reasonable manner and time and place.
– Buyer bears expense inspection:


1) Encourages buyer to use reasonable method of
inspection.
2) Eliminates “phantom” inspections.
– Nonconforming goods buyer recovers
inspection expenses and any other damages.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
INTERVENING RIGHTS

Cure.
– Should buyer find on inspection nonconforming
goods buyer can:


Accept goods despite nonconformity is minor.
Goods are to different to be acceptable. Promptly
notify seller, specifying in detail problems with
goods result in nonconformity.
– If time for performance has not expired, the
Code allows seller to avoid breaching the
contract.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
INTERVENING RIGHTS

Cure.
– Seller may cure the defect, put goods into
conformity within time period specified in
original agreement.
– No extension time permitted without buyer’s
consent.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S DUTIES

Duty to accept goods.
 Duty to pay for the goods.
 Acceptance
– Accept entire shipment without regard to
conformity of the goods.
– Reject the entire shipment without regard
conformity of the goods.
– Accept some of the goods and reject the rest of
the shipment.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S DUTIES

After reasonable time to inspect, buyer accepts by:
– Signifying that the goods conform to the
contract.
– Signifying that the goods do not conform, but
will be retained and accepted despite
nonconformity.
– Failing to make proper rejection of goods if
they are nonconforming.
– Doing anything that is not consistent with the
seller’s ownership of the goods.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S DUTIES

Payment.
– Duty to tender payment.
– Buyer allowed to pay in any manner that is
normal in the ordinary course of business.
– Once buyer pays, the contract is fully
performed.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
LEASES UNDER ARTICLE 2A

Article 2A provides remedies if lease
contract is breached.
 Lessor’s Remedies.
– Lessee wrongfully rejects goods tendered,
revokes acceptance, fails to make payments, or
repudiates the lease, the lessor may:
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
LEASES UNDER ARTICLE 2A

Lessor’s Remedies.
– Cancel the lease contract.
– Proceed respecting goods not identified to the
lease.
– Withhold delivery of goods and take possession
of previously delivered goods.
– Stop delivery of goods by any bailee.
– Dispose of goods and recover damages, retain
goods and recover damages, or recover rent.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
LEASES UNDER ARTICLE 2A

If Lessor fails to deliver conforming goods,
repudiates the lease, or lessee rightfully rejects
goods or justifiably revokes acceptance, the
Lessee may:
– Cancel lease contract.
– Recover rent and security paid; recover in installment
lease that which is just under the circumstances.
– Cover and recover damages to all goods affected,
whether or not identified on leases contract, or recover
damages for non-delivery.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
LEASES UNDER ARTICLE 2A

Lessee’s Remedies.
– If lessor fails to deliver or repudiates contract,
lessee may:


Recover goods identified to the contract.
Obtain specific performance or replevin.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SALES UNDER CISG

Seller tenders goods to Buyer as per
contract.
 Duty of Good Faith imposed on parties.
 Buyer has right to inspect goods (two years
notice to reject goods!).
 Seller may cure defects.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
THE REASON FOR REMEDIES

Seller tenders conforming goods to buyer at
time and place of delivery.
 Buyer inspects, accepts, and pays for goods.
 Seller can cure if goods are nonconforming.
 Remedies available to both the buyer and
seller should breach develop.
 Remedies seek to minimize the impact of
the breach.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S REMEDIES

If buyer wrongfully rejects goods, or Refuses
to pay for the goods, or Breaches the
contract, then
 Seller is entitled to remedies.
 Possible remedies depend on when buyer
breaches.
– Six possible remedies if breach occurs before
acceptance.
– After acceptance two possible remedies.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S PRE-ACCEPTANCE REMEDIES

Withhold delivery of goods.
 Stop delivery of goods in transit to the
buyer.
 Sue for the contract.
 Resell any goods, or raw materials, or workin-process.
 Sue for damages or lost profit due to breach.
 Cancel any future performance obligations.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SELLER’S POST-ACCEPTANCE REMEDIES

Sue the buyer for the price of the goods.
 Reclaim the goods.
– To do so the seller must prove:
 1) Buyer received the goods on credit while
insolvent.
 2) Seller demanded the return of the goods within 10
days of delivery to the buyer.
– Buyer misrepresented insolvency in writing to
seller within three months of delivery, which
waives 10 day limit.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S REMEDIES

Buyer entitled to remedies.
 Buyer remedy options depend on the timing
of the breach.
 Six pre-acceptance remedies available.
 Three post-acceptance remedies available.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S PRE-ACCEPTANCE REMEDIES

Pre-acceptance Remedies of the Buyer.
– Sue for damages for breach of contract.
– Cover, and sue for damages resulting from the
cost of covering.
– Seek specific performance or replevin.
– Claim any identified goods in seller’s
possession.
– Resell any nonconforming goods shipped by
seller.
– Cancel any future duties under the contract.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
BUYER’S POST-ACCEPTANCE REMEDIES

Revoke acceptance and seek any appropriate preacceptance remedies.
– 1) Defect must have been hidden; or seller must have
promised to cure defect, but no cure occurred.
– 2) Defect must substantially impair the value of the
contract.

Sue for damages due to nonconformity of goods
shipped.
 Recoup by deducting damages suffered from total
contract price still owed to the seller.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
MODIFICATIONS

Parties to a contract may tailor remedies to
fit their contract and circumstances.
 Contract may expressly contain remedy
provisions, in addition to those provided by
UCC.
 May provide remedies in place of those
provided by UCC.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
MODIFICATIONS

May place a limit on the remedies that may
be used.
 Select one remedy to be used as the
exclusive remedy for particular contract.
 Consequential damages may be excluded or
limited.
 Liquidated damages may be specified.
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BUSINESS LAW: Cases & Principles
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SPECIAL PROBLEMS

In determining when remedies may be
obtained and what remedies to seek.
 Several special problems may arise:
– (Anticipatory) Repudiation.
– Excused Performance.
– Adequate Assurances.
– Duty to Particularize.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS

Anticipatory Repudiation.
– One party may repudiate obligations before
performance is due.
– Other party may choose:



1) To await performance for a commercially
reasonable time despite repudiation.
2) Non-repudiating party may treat repudiation as an
immediate breach and seek any available remedies.
3) Non-repudiating party may suspend performance
under contract until there is a resolution of problem.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS

Excused Performance.
– Seller forced into delay in making delivery.
– Not able to make delivery.
– May have to make partial delivery.
– Excused, in whole or in part, if performance is
impracticable of occurrence of event whose
nonoccurrence was basic assumption of contract.
– Also excused, if lack of performance is based on
compliance with government order or regulation.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS

Adequate Assurances.
– Each party expects to receive the benefit of the
bargain made.
– Insecure party may demand assurances of
performance.
– Insecure party must make a written demand for
assurance that performance will be tendered.
– Until assurances are given, requesting party
may suspend performance.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
SPECIAL PROBLEMS

Duty to Particularize.
– Buyer rightfully rejects goods, must do so
properly.
– Buyer may reject only by stating exactly what
the defect is.
– Failure to particularize can result in buyer’s
being required to pay for nonconforming goods
or other liability to the seller.
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BUSINESS LAW: Cases & Principles
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STATUTE OF LIMITATIONS

Any lawsuit for breach of a sales contract
must be started within four years of the
breach, unless contract sets shorter time
period.
 Time period cannot be less than one year.
 Time limitation begins at breach not at
discovery.
 Reemphasizes the need for a buyer to
inspect goods carefully and completely.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
REMEDIES IN LEASING UNDER 2A

Lessor’s Remedies:
– Cancel the Lease contract.
– Withhold delivery of goods.
– Stop delivery of goods by bailee.
– Dispose (sell) goods and recover damages.

Lessee’s Remedies:
– Cancel the contract.
– Recover rent and security deposit.
– Cover and recover damages for goods.
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BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
REMEDIES UNDER CISG
 Breach
by Seller (Buyer’s Remedies
found in Exhibit 18.4).
 Breach
by Buyer (Seller’s Remedies
found in Exhibit 18.5).
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