22-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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4• Formation and Terms of Sales

Contracts• Product Liability

• Performance of Sales Contracts• Remedies for Breach of Sales

Contracts

Sales

PART

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Remedies for Breach of Sales Contracts

PA ET RHC 22Every great mistake has a halfway moment, a split second when it can be recalled and perhaps remedied.

Pearl S. Buck, novelistWhat America Means to Me (1943)

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Learning Objectives

• Discuss meaning of liquidated damages and cover, and when UCC allows enforcement

• List and describe UCC remedies for an injured buyer or seller

• Describe damages available to injured buyer, including specific performance

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• Parties may agree to remedies in the contract– Agreed remedy applied in

the event of a breach of contract to reduce risk

– Example: “If delivery is not made by September 1, Seller will pay Buyer $1,000 as liquidated damages.”

Agreements as to Remedies

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• In a liquidated damages clause, parties agree on the amount of damages to be paid to the injured party– Enforced if reasonable amount and actual

damages would be difficult to prove• Example: Baker v. International Record

Syndicate, Inc.– If not enforceable because amount is a

penalty or unconscionable, injured party may recover the actual damages suffered

Liquidated Damages

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• In a limitation or exclusion clause, parties agree to limit either the remedies that the law makes available or the damages that can be covered [2–719(1)]– Limitations commonly placed on liability

for consequential damages– Attempt to limit consequential damages

for injury to a person by consumer goods is prima facie unconscionable [2–719(3)]

Limitation or Exclusion

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• If buyer breaches the contract and seller has goods, seller has several remedies: – Cancel the contract [2–703(f)] and

withhold delivery of goods [2–703(a)]– Resell manufactured goods and

recover damages (difference between resale price and price buyer agreed to pay by contract [2–706])

Seller’s Remedies

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• Recover purchase price of goods (must hold goods for buyer)

• Recover damages for rejection or repudiation1. difference between contract price and

current market price for the goods and 2. “profit” that seller lost when buyer did not

go through with the contract [2–708]• See

Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co.

More Seller’s Remedies

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• If buyer is insolvent and has the goods, seller may:– Recover purchase price– Reclaim goods in

possession of buyer• If goods are in transit,

seller may stop shipment

More Seller’s Remedies

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• Seller should select alternative that will minimize loss [2–704(2)]

• Example: Madsen v. Murrey & Sons Co., Inc. – Seller, who did not complete manufacture

of goods on buyer’s repudiation, but rather dismantled and largely scrapped the existing goods, was held not to have acted in a commercially reasonable manner

Duty to Mitigate Damages

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• Under the (CISG), aggrieved seller has five potential remedies when a buyer breaches the contract:1. suspension of seller’s performance2. “avoidance” of the contract3. reclamation of goods in buyer’s

possession4. an action for the price5. an action for damages

Seller’s Remedies & The CISG

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• If seller breaches the contract, the buyer has several remedies: – Buy other goods (cover) and recover

damages from seller based on any additional expense that buyer incurs in obtaining the goods [2–712]

Buyer’s Remedies

Example: KGM Harvesting Co. v.

Fresh Network

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• Recover damages based on difference between contract price and current market price of goods [2–713]

• Recover damages for any nonconforming goods accepted by buyer based on difference in value between what buyer received and what buyer should have received [2–714]

More Buyer’s Remedies

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• Obtain specific performance of the contract where goods are unique and cannot be obtained elsewhere [2–716]

• Recover damages on basis-of-the-bargain calculation for fraud and misrepresentation [2-721]– See Green Wood Industrial Co. v.

Forceman Int’l Development Group, Inc.

More Buyer’s Remedies

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Thought Question• Assume Naomi had a car to sell that she

knew had been in an accident and repaired. Is it ethical to sell a damaged and repaired car without telling the potential buyer?