The Sales Contract: Performance, Breach, and Remedies for Breach

Chapter 17: The Sales Contract: Performance, Breach, and Remedies for Breach 103

CHAPTER 17

The Sales Contract: Performance, Breach, and Remedies for Breach

KEY POINTS IN THE CHAPTER

· The seller performs a sales contract by delivering conforming goods; the buyer performs by accepting and paying for these goods, assuming, of course, that the goods conform to the contract.

· The perfect tender rule under the UCC requires the seller to tender goods that exactly meet the requirements of the contract. Under the common law rule of contract performance, substantial performance is considered performance. Because the perfect tender rule is a harsh rule, the code has allowed some exceptions.

· The buyer has the right but not the duty to inspect goods before accepting delivery unless the goods were sent C.O.D. In this case, the buyer must pay first before making an inspection. Failure to inspect operates as a waiver. Further, a poor inspection has the same effect as a complete inspection.

· If there has been a proper tender and the goods conform to the contract, the buyer has a duty to accept and pay for these goods.

· If either the goods or the delivery does not conform to the contract, the seller can cure if the defect is simple. If the cure is complicated, or if the defect is so serious that a cure will not give a buyer substantially what was bargained for, then the seller has no right to cure and the buyer is entitled to reject the goods. If the seller does not cure, or is not allowed to, the buyer may reject the goods (cancel the contract). If after an inspection, the buyer accepts nonconforming goods, he or she may no longer reject them.

· Remedies for breach of the sales contract by the seller that are available to the buyer include (1) suing for breach of warranty, (2) canceling the contract and then covering, (3) canceling the contract and suing for damages, and (4) seeking specific performance or replevin.

· Remedies available to the seller if the buyer breaches the contract include (1) canceling the contract, (2) reselling the goods and suing for damages, (3) suing the buyer for the purchase price, (4) suing the buyer to recover damages for nonacceptance, (5) withholding delivery of the goods, and (6) reclaiming the goods from the buyer.

COMPLETION QUESTIONS

In the statements below, important words have been omitted. Fill in the blanks to complete each statement.

1. The first obligation of the seller is to tender (offer) ______goods.

2. A buyer can sue for breach of warranty only after ______is given to the seller that there is a problem with the goods.

3. If the seller breaches the sales contract, one remedy available to the buyer is to buy substitute goods elsewhere to replace those originally due from the seller. This remedy is called the right to ______.

4. The buyer has the right to ______the goods within a reasonable time before accepting delivery to determine whether they conform to the contract.

5. Assuming that the goods have been delivered properly and that they conform to the contract, the buyer has a duty to ______the goods and pay for them according to the terms of the contract.

6. Damages for the breach of a sales contract by a seller generally are set at the difference between the contract price and the ______price at the time the buyer learns of the breach, plus any expenses.

7. In the case of a breach of contract by a buyer, a seller who still has possession of the goods but who is unable to resell them elsewhere can hold the goods for the buyer and sue for the ______.

8. A seller legally can withhold the delivery of goods purchased on credit if the seller discovers before delivery that the buyer is ______.

9. Under the UCC, a breach of contract allows the injured party to pursue more than one ______.

10. The UCC allows a seller who gives up possession of goods to the buyer to reclaim them on discovering a buyer’s insolvency if a demand is made within ______days after the buyer receives the goods.

SHORT-ANSWER QUESTIONS

Answer each of the following questions in the space provided.

1. Under what circumstances may the buyer employ the remedy of replevin?

______

2. What are the general obligations of the seller and the buyer who have entered into a sales contract?

______

3. How does the perfect tender rule, a requirement of the UCC, change the common law rule of performance?

______

MULTIPLE-CHOICE QUESTIONS

Circle the letter of the best answer.

1. If, while the goods are in transit with a common carrier, the seller learns that the buyer has become insolvent, the seller can

a. stop the goods in transit.

b. sue for nonacceptance.

c. sue the buyer for fraud.

d. sue the buyer for conversion.

2. Snyder sold some standard-sized sheets of plywood on credit to Robinson, promising delivery within ten days. Five days later, Snyder wrongfully refused to deliver the goods to Robinson. Robinson legally is entitled to

a. sue for the purchase price.

b. exercise a right of lien on the goods.

c. sue for specific performance.

d. purchase similar goods elsewhere and sue for damages.

3. Franklin, owner of Dollar Buy Department Store, accepted and paid for twenty-five dozen ballpoint pens from the Perkins Stationery Company. After selling some of the pens, Franklin began to get complaints that the pens would not write. What action can Franklin take against the Perkins Company?

a. None.

b. resell the goods and sue for damages

c. sue for specific performance

d. sue Perkins for breach of warranty

4. A seller who is notified that the buyer is not going through with a contract can

a. cancel the contract.

b. obtain specific performance.

c. sue for breach of warranty.

d. cover.

5. One remedy that is not available to a seller is

a. rescinding the contract.

b. reclaiming the goods.

c. stopping the goods in transit.

d. suing for breach of warranty.

6. Which remedy is not available to the buyer?

a. Cover.

b. Cure.

c. Replevin.

d. Specific performance.

7. If the contract provides for delivery C.O.D.,

a. the buyer must pay prior to inspection.

b. the buyer has the right to pay after inspection.

c. the buyer has no right of inspection.

d. none of these answers.

8. The remedy that enables the buyer to obtain ordinary goods that have been ordered but wrongfully detained by the seller is called

a. curing.

b. covering.

c. replevin.

d. specific performance.

9. When a seller breaches a warranty, the measure of damages is generally the difference between

a. the value of the warranty and the contract price.

b. the value of the warranty and the cover price.

c. the value of the goods accepted and their value had they conformed to the warranty.

d. the cover price and the contract price.

10. Under Article 2 of the UCC, cure involves

a. the right of the seller to correct defective performance.

b. the duty of the seller to provide additional goods.

c. the right of the buyer to reject a shipment of goods for no reason at all.

d. the duty of the buyer to accept goods without first inspecting them.

CASE PROBLEMS

Read the case problem below and then answer the questions that follow.

The Morgan Company, a manufacturer of men’s clothing, entered into a contract to send twenty dozen shirts a month between September and December to the Best Wholesale Clothing Company. In November, the Morgan Company discovered that Best Wholesale Clothing was insolvent. What action can the Morgan Company take under the following circumstances?

1. The September and October shipments were delivered to Best Wholesale Clothing.

______

2. The November shipment had been placed in the hands of a common carrier for delivery to Best Wholesale Clothing.

______

3. The December shipment had been manufactured but was in Morgan’s warehouse awaiting shipment.

______