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Barnes/Dworkin/Richards Law for Business, 13e Instructor’s Manual

CHAPTER 22: REMEDIES FOR BREACH OF SALES CONTRACTS LECTURE OUTLINE 1.

Note that the objective of the remedies provided to an aggrieved buyer or seller by the Code is to put him in the same position as if the contract had been fully performed.

2.

Note that within limits the buyer and seller may provide their own remedies to be applied in the event one of the parties fails to perform. Discuss the concept of liquidated damages and when a liquidated damages clause will be enforced.

Example: Problem Case number 1 a.

Discuss the concept of consequential damages and the ability of the parties, within limits, to limit or exclude their liability for consequential damages.

Helena Chemical Co. v. Williamson – pp. 371 - 372 Where a novice farmer with a 10th education purchased corn and soybean seed from a chemical company that required him to sign a Credit Sales and Services Agreement that limited the company’s liability for any consequential damages in the event he filed a claim for negligence or breach of warranty, the court refused to enforce the exclusion, finding that it was unconscionable. The court also held that a provision that limited any recovery on his part to the purchase price, irrespective of any damages he had sustained as a result of the company’s negligence or breach of warranty, failed of its essential purpose and could not be enforced against him.

Points for Discussion: Note that the result might have been quite different if it was a commercial agreement between two parties on equal footing who could have been expected to bargain over the terms of the agreement.

Additional Example: Problem Case number 2 3. Discuss the four-year statute of limitations provided by the Code and note that the parties may shorten the period down to one year but may not extend it, Seller’s Remedies 4.

Discuss the remedies available to an aggrieved seller under the Code and point out that they are cumulative toward the end of putting the seller in the same position as if the contract had been fully performed. a.

Cancel the contract;

b.

Withhold delivery of undelivered goods; 22-1

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Barnes/Dworkin/Richards Law for Business, 13e Instructor’s Manual

c.

Complete manufacture of goods or stop the manufacturing, whichever is commercially reasonable;

Example: Problem Case number 3. d.

Resell the goods and recover damages based on the difference between the contract price and the resale price plus incidental damages but less expenses saved;

Example: Problem Case number 6. e. Recover from the buyer the damages the seller sustained or the profit the seller lost plus incidental damages but less expenses saved; Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co. – pp. 375 - 376 When the buyer cancelled a contract to manufacture a customized building, the seller was entitled to recover the profit it would have made from full performance of the contract even though it also had been able to resell some of the items it had acquired in anticipation of the contract for the same price as called for in the contract. f.

Recover the contract price of goods delivered to or accepted by the buyer, lost or destroyed after risk of loss had passed to the buyer, or that are in the possession of the seller and which he is unable to resell;

Additional Example: Problem Case number 4. f. Recover the goods within ten days of delivery if the buyer is insolvent or if the buyer in the previous three months represented he was solvent and was in fact not solvent.

Concept Summary: Seller’s Remedies (on Breach by Buyer) – p. 377 Buyer’s Remedies 5.

Discuss the remedies available to an aggrieved buyer under the Code and point out that they are cumulative toward the end of putting the buyer in the same position as if the contract had been fully performed. a. Cancellation of the contract and recovery of damages, including any portion of the purchase price that has been paid.

Beer v. Bennett—p. 378 Where an automobile purchased in response to an Internet ad turned out to be missing numerous parts necessary to make it operable, the court held that the purchaser was entitled to a refund of the purchase price and that he was not limited to an award for damages based 22-2 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Barnes/Dworkin/Richards Law for Business, 13e Instructor’s Manual

on the difference between what he paid and the value of the vehicle he received. The court noted that the remedy awarded was not an award of actual damages but rather based on revocation of acceptance which entitled the buyer to recover any poertion of the purchase price that had been paid.

Example: Problem Case number 5. b.

“Covering” and recovering damages from the seller based on any additional expense the buyer incurs in obtaining the substitute goods;

c.

Recovering damages based on the difference between the contract price and the current market price of the goods;

d.

Recovering damages for any nonconforming goods accepted by the buyer based on the difference in value between what the buyer got and what he should have gotten;

Cahaba Disaster Recovery, LLC v. Rogers –pp.380 – 381 Where the parties had contracted for absorbent boom but the boom actually delivered was not absorbent, the buyer was not precluded from recovering damages on the grounds it had accepted the boom in question. The buyer had given the seller notice of the nonconformity and offered it an opportunity to deliver conforming goods which the seller did not avail itself of. Accordingly, the buyer was entitled to recover as damages the difference between the value of the goods as accepted and the value they would have had if they had been as warranted.

Additional Example: Problem Case number 7. e.

Recovering in certain cases incidental damages (extra expenses) incurred by the buyer and/or consequential damages which the seller knew or should have known at the time of contracting the buyer would sustain if the seller did not meet his obligations and which could not have been prevented by cover; Example: Problem Case number 8.

Concept Summary: Buyer’s Remedies (on Breach by Seller)—p. 382 g. Obtaining specific performance of the contract where the goods are “unique” and cannot be obtained by “cover.”

Taylor v. Hoffman Ford, Inc. – pp. 382 - 383 Where the parties entered into a purchase agreement for a first run limited edition Ford GT 40, and seller thereafter asserted that it would require a excessive “dealer prep” charge, the buyer 22-3 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Barnes/Dworkin/Richards Law for Business, 13e Instructor’s Manual

was entitled to seek specific performance because the demand for the excessive fee constituted a repudiation of the contract and the car was a limited edition in short supply that could not be obtained without considerable expense, loss, delay or inconvenience.

ANSWERS TO QUESTIONS AND PROBLEMS – pp. 383 - 386 1.

Yes. The court held that damages should be awarded to Baker and based on the liquidated damages clause. Citing Section 2-718 of the UCC, it said that under Texas law, a liquidated damages clause will be enforced when the court finds (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the amount of liquidated damages is a reasonable forecast of just compensation. Here, in light of Timbuk-3’s unknown potential for fame, along with the inherent difficulty in determining the value of a piece of art and the uncertain long-term earning power of the photographs, $1,500 was not an unreasonable estimate of Baker’s actual damages. The court also noted that IRS was unable to present satisfactory evidence showing “actual” damage disproportionate to the claimed liquidated damages, and thus there was no basis for voiding them as a “penalty.” Baker v. International Record Syndicate, Inc., 812 S.W.2d 53 (Ct. App. Tex. 1991).]

2.

Yes. Under section 2-719, consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Here no injury to the person of Lobianco is involved, so the limitation is not prima facie unconscionable. At the same time the loss is not commercial and the loss is not presumptively conscionable. In analyzing this situation, it was noted that the alarm company had assumed some responsibility— repairing the alarm system so that it would work—and Lobianco had assumed the risk of loss that the contract had left her with, a risk she could cover by insurance. Accordingly, the limitation of liability was not unconscionable—and was enforced against Lobianco.

Lobianco v. Property Protection, Inc., 437 A.2d 417 (Super. Ct. Pa. 1981).

3.

No. The court held that Murrey’s action in dismantling the tables and using the materials for salvage and firewood was not commercially reasonable. It had a duty to mitigate its damages, which it could have done by marketing the tables at full or discounted prices.

Madsen v. Murrey & Sons Co., Inc., 743 P.2d 1212 (Sup. Ct. Utah 1987).

4.

No. The furniture store was not entitled to recover the purchase price. First, it had to show that it had tried to resell the furniture and rugs to someone else but had been unable to do so or that it would be fruitless to try. The court indicated that it was not convinced that the goods could not be resold if the prices were marked down. In re Bacon Estate, 5 UCC Rep. 486 (Orphan’s Court Ct. Penn. 1968).

5.

Yes. Here, Burlington breached the implied warranty of merchantability by selling Baker a defective product and under 2-714 of the UCC, Baker is entitled to the return of the purchase price in cash. Baker v. Burlington Coat Factory Warehouse, 34 UCC Rep.2d 1052 (N.Y. City Ct. 1998)

6.

Yes. Cohn was awarded $1,679.50 as damages. The resale was made in good faith and in 22-4 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Barnes/Dworkin/Richards Law for Business, 13e Instructor’s Manual

a commercially reasonable manner after giving notice of it to Fisher. Under these circumstances the seller is entitled to recover from the defaulting buyer the difference between the contract price and the resale price together with incidental damages. Cohn v.

Fisher, 287 A.2d 222 (Super. Ct. N.J. 1972).

7.

The court awarded Barr the difference between the market value the yacht would have had if it had been as warranted and represented (which it found to be $93,700) and its market value at the time of sale (50 per cent of that or $46,850). It also awarded Barr $1,531 for repairs necessary to bring the yacht up to being worth 50 percent of the value as warranted. Barr v. S-2 Yachts, Inc., 7 UCC Rep.2d 1431 (E.D. Va. 1988).

8.

Yes. De La Hoya was awarded damages covering both the purchase price of the gun and attorney fees. De La Hoya was entitled to recover the difference between the value of the gun he received ($0 because he had to give it back to the real owner) and what he paid ($140) plus ”incidental and consequential damages.” The attorney’s fees were a direct and natural consequence of the breach of the warranty and could not have been prevented by “cover.” De La Hoya v. Slim’s Gun Shop, 146 Cal Rptr. 68 (Super. Ct. Cal. 1978).

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