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ACC 473 > Chapter 22: Performance and Breach of Sales and Lease Contracts > Flashcards

Chapter 22: Performance and Breach of Sales and Lease Contracts Flashcards

1
Q

Seller/Buyer contract obligations

A
  1. Seller must transfer and deliver conforming goods
  2. Buyer must accept and pay for conforming goods
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2
Q

UCC remedies

A
  1. Retain goods
  2. Require breaching party’s performance
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3
Q

Good Faith

A

Foundation of every UCC commercial contract. Honesty

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4
Q

Good Faith (merchant)

A

Honesty in fact and observance of reasonable commercial standards of fair dealing in the trade
Held to higher standard of care than non-merchants

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5
Q

Good Faith and Contract Performance

A
  1. Seller’s obligation is to transfer and deliver conforming goods
  2. Buyer’s obligation is to accept and pay for conforming goods
  3. Court imposes good faith standards when contract is unclear
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6
Q

Tender

A

Make goods available

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7
Q

Seller’s duty to tender delivery of conforming goods

A
  1. With reasonable notice
  2. At a reasonable hour
  3. In a reasonable manner
  4. Unless otherwise agreed
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8
Q

Place of delivery not designated in contract (Place of business, no place of business, warehouse)

A
  1. Buyer picks up at Seller’s place of business
  2. If seller has no place of business, then seller’s residence
  3. If both parties know the goods are elsewhere (at a warehouse), then place of delivery is the location of goods
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9
Q

Shipment Contracts: Seller has a duty to:

A
  1. Put goods int hands of independent carrier
  2. Make contract for transportation
  3. Obtain and promptly deliver or tender to the buyer any document necessary
  4. Promptly notify Buyer that shipment has been made
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10
Q

What if seller doesn’t make a reasonable shipping contract or fails to notify buyer of the shipment?

A

Buyer can reject goods, but only if a material loss or significant delay in delivery

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11
Q

Destination contract: Seller has a duty to:

A
  1. Tender the goods at a reasonable house
  2. Hold conforming goods at the buyer’s disposal for a reasonable period of time
  3. Give buyer appropriate notice
  4. Provide buyer with any document of title necessary for buyer to obtain delivery from carrier
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12
Q

The Perfect Tender Rule

A

If goods, or tender of delivery, fail in any respect to conform to the contract buyer has a right to:
1. Accept the goods
2. Reject the entire shipment
3. Accept part and reject part

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13
Q

Exceptions to Perfect Tender Rule:

A
  1. Agreement of the parties
  2. Seller’s cure
  3. Reasonable grounds that buyer will accept
  4. Substitution of carrier
  5. Commercial Impracticability
  6. Destruction of goods
  7. Right of Assurance
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14
Q

Agreement of the Parties (Exception to Perfect Tender Rule)

A

Parties agree that some defective goods will be acceptable, if seller is able to repair or replace within a reasonable time

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15
Q

Cure

A

The seller’s right to repair, adjust or replace defective or nonconforming goods

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16
Q

Seller’s Cure (Exception to Perfect Tender Rule)

A

Seller has the right to attempt to “cure” (ship conforming goods if:
1. Delivery is rejected because goods were nonconforming
2. Time for performance has not expired
3. Seller provides timely notice to buyer of intent to cure
4. The cure can be made within the contract time for performance
Reasonable Grounds Required, also limits right to reject goods

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17
Q

Reasonable Grounds Required

A

Even if time for performance has expired, seller has reasonable grounds to believe buyer will accept nonconforming tender

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18
Q

Limits Right to Reject Goods

A

Substantially restricts right of rejection. Buyer must act in good faith and give specific reasons for refusing acceptance

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19
Q

Substitution of Carriers (Exception to the Perfect Tender Rule)

A

If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. Seller is normally responsible for any additional shipping costs, unless contracts state otherwise

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20
Q

Installment Contracts (Exception to the Perfect Tender Rule)

A

Require or authorize delivery in two or more separate lots to be accepted and paid for separately

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21
Q

When can installment contracts be breached

A

When one or more nonconforming installments substantially impair the value of the whole contract

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22
Q

When can a buyer or lessee reject an installment

A

Only if the nonconformity substantially impairs the value of the installment and cannot be cured

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23
Q

Commercial Impracticability (Exception to Perfect Tender Rule)

A

Occurrence of an unforeseen contingency that makes performance impracticable.
Seller must notify buyer as soon as practical that there will be a delay or nondelivery
A delay does not mean it’s a breach

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24
Q

T/F: Cost is not a foreseeable contingency

A

False

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25
Q

Destruction of Identified Goods (Exception to Perfect Tender Rule)

A

If no fault of either party (fire, flood, hurricane) “identified” goods are destroyed

26
Q

Destruction of Identified Goods: Goods are destroyed before risk passes to buyer, then

A

Both seller and buyer are excused from performance

27
Q

Destruction of Identified Goods: If goods are partially destroyed

A

Buyer can inspect goods and
1. Void contract
2. Accept with reduced price

28
Q

Assurance and Cooperation (Exception to Perfect Tender Rule)

A
  1. Party has reasonable grounds to believe the other will not perform
  2. Party can required “in writing” adequate assurance that the other party will perform
  3. Until received, can suspend performance
  4. If not received within reasonable period, failure to respond can be treated as a repudiation of the contract
29
Q

If one party is not cooperating, what right does the other party have

A

The other party has the right to suspend performance and hold the first party in breach

30
Q

When does the buyer make the payment?

A

Buyer must make payment at the time and place buyer receives the goods

31
Q

Right to Inspect

A

Buyer has right to inspect goods before paying unless parties otherwise agree

32
Q

What kind of condition is right to inspect

A

Condition precedent to the right of the seller to enforce payment

33
Q

Buyer can accept goods

A
  1. By words or conduct
  2. Buyer had reasonable amount of time and failed to reject
  3. Buyer performs an act which indicates buyer thinks he/she is the owner
34
Q

Partial Acceptance

A

Some of goods do not conform and seller failed to cure, buyer can make partial acceptance

35
Q

Anticipatory Repudiation

A

Party communicates he/she will not perform by time of contract performance

36
Q

Anticipatory Repudiation: Nonbreaching party rights

A
  1. Can treat the anticipatory repudiation as material breach and pursue a remedy
  2. Wait a reasonable time
37
Q

Can an anticipatory repudiation be retracted?

A

Yes

38
Q

Buyer/Lessee Breaches: Seller can:

A
  1. Cancel contract
  2. Withhold delivery
  3. Resell goods (scrap or finished product) and sue for damages
  4. Sue to recover purchase price or lease payments due
  5. Sue to recover damages for buyer’s nonacceptance
39
Q

Right to Cancel the Contract

A

If the buyer or lessee breaches the contract, the seller or lessor can choose to cancel the contract. Seller must notify buyer. Buyer is not discharged from remaining obligations

40
Q

Right to Withhold Delivery

A

If breach by buyer, seller can withhold delivery of all goods. Seller or lessor can also refuse to deliver the goods to a buyer or lessee who is insolvent unless the buyer or lessee pays in cash

41
Q

Right to Resell or Dispose of Goods

A

Seller can resell and keep profits from sale and hold buyer liable for difference. Seller must give original buyer reasonable notice of the resale, unless goods are perishable/will rapidly decline in value

42
Q

Right to Resell or Dispose of Goods: Unfinished Goods

A

Seller can
1. Cease manufacturing and resell for scrap/salvage
2. Complete manufacture of the goods, sell them, and hold buyer responsible or deficiency

43
Q

Right to Recover the Purchase Price or Lease Payment Due

A

Seller can recover purchase price plus incidentals. If unable to resell, seller must hold goods for buyer

44
Q

What does reselling do to to seller’s damages

A

Net proceeds mitigate seller’s damages

45
Q

Right to Recover Damages for Buyer’s Nonacceptance

A

If buyer repudiates (or wrongfully refuses to accept goods) seller can bring action to recover damages

46
Q

Two ways to calculate damages that need to be recovered

A
  1. Lost profits (IF market price vs. contract price is inadequate)
  2. Contract price verses market price + incidentals
47
Q

When are goods “in transit”

A

When seller has tendered goods to carrier

48
Q

Seller’s rights to stop goods in transit if:

A
  1. Buyer is insolvent (Seller can stop entire shipment of goods)
  2. Buyer is in breach (Seller may stop a whole truckload or whole container)
    Seller must timely notify carrier or other bailee that goods are to be returned
49
Q

Buyer breaches contract: Seller or lessor can recover ___________

A

Purchase price of the goods or the lease payments due, plus incidental damages

50
Q

How can seller breach contract?

A
  1. Seller refuses to deliver goods
  2. Seller delivers non-conforming goods
51
Q

Seller/lessor breaches: Buyer can:

A
  1. Cancel the contract
  2. Recover goods paid for if seller is insolvent
  3. Sue for specific performance if goods are unique or damages are inadequate
  4. Buy other goods and recover damages
  5. Sue to obtain identified goods held by a 3rd party (replevin)
  6. Sue to recover damages
52
Q

Cancel/Rescind the contract

A

Buyer or lessee is relieved of any further obligations under the contract but retains all rights to other remedies against

53
Q

Recover goods paid for if seller is insolvent

A

Whether partial or full payment, seller or lessor must have become insolvent within ten days after receiving the first payment and goods must be identified to the contract

54
Q

Buy other goods and recover damages from the seller

A

Buyer can recover damages equal to difference between the contract price and the market price of the goods at the time the buyer learned of the breach

55
Q

Sue to obtain identified goods held by a third party (replevy goods)

A

Under the UCC, a buyer or lessee can replevy goods identified to the contract if the seller or lessor has repudiated or breached the contract

56
Q

Sue to obtain damages (measure of recovery)

A

Difference between the contract price and the market price of goods at the time the buyer learned of breach

57
Q

Buyer’s rights if seller does not make perfect tender

A

Can reject all or part of goods
1. Buyer can cancel the contact or obtain cover
2. Buyer must timely notify seller of rejection and reasons
3. Merchant-buyer must follow seller’s directions to return goods

58
Q

Revocation of Acceptance (of the goods) if:

A
  1. Acceptance was based on the reasonable assumption that the nonconformity would be cured, and it has not been cured within a reasonable period of time
  2. The failure of the buyer to discover the nonconformity was reasonably induced either by the difficulty of discovery before acceptance or by assurance made by the seller or lessor
59
Q

Measure of damages if seller delivers nonconforming goods

A

Difference between value of accepted goods (market) and goods as warranted
*Consequential and incidental damages if provable

60
Q

Additional provisions affecting remedies

A
  1. Exclusive Remedies
  2. Consequential Damages
  3. Statute of Limitations
61
Q

Letter of Credit Transactions

A

The issuer (a bank) agrees to issue a letter of credit and to determine whether the beneficiary (seller or lessor) performs certain acts. In return, the account party (buyer or lessee) promises to reimburse the issuer (a bank) for the amount paid to the beneficiary

ACC 473 (7 decks)

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