Dynamic business law 4e kubasek 4e CH24

Chapter 24
Remedies for Breach of Sales and
Lease Contracts

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Overview
• LO24-1: What constitutes a breach of a
sales contract?
• LO24-2: What is resale?
• LO24-3: What money damages are available
for breach?
• LO24-4: What are liquidated damages?
• LO24-5: What is cover?
• LO24-6: When is specific performance of
the contract a remedy?

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Chapter 24 Hypothetical Case 1
• Johan Statham, a citizen and resident of Decatur, Illinois,
contracted to purchase a rare Egyptian cat statue from
Tutankhamen Trading Company ("Tutankhamen Trading"),
headquartered in Chicago. According to Egyptian antiquities
experts, the statute is the only known one of its kind still in
existence. Last month, the contractually specified date for the
transaction came and went, with Tutankhamen Trading
maintaining possession of the statue, claiming ownership of it,
and reneging on the deal.

• What cause of action do you recommend for Johan Statham if
he chooses to pursue breach of contract litigation against
Tutankhamen Trading Company?

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Chapter 24 Hypothetical Case 2
• Fred Dare Appliances, Inc. sold a $2,000 refrigerator to Harriet Pool. Per the
terms of the agreement, the buyer was to pick up the appliance on July 1 and
pay for it in full before taking possession. July 1 came and went, and the buyer
did not appear. Fred Dare, the owner of the store, is certain that Pool breached
the contract.
Dare has a plan. His best friend, Sam Unger, desperately needs a new
refrigerator, but he cannot currently afford one at full retail price. In fact, Unger
only has $200. Fred plans to sell the refrigerator to Unger for $200, and then
send a bill for $1,800 to Pool. (The $1,800 represents the difference between the
price of the refrigerator in Fred Dare Appliances, Inc.'s contract with Pool and
the resale price of $200 to Unger.) Fred's reasoning is that Pool breached the
contract, and that he is simply exercising his resale right. Fred's brother-in-law,
an attorney, once told him that if a customer breaks a purchase contract, the
seller has the right to resell the good to a substitute buyer and then recover any
damages from the original, breaching buyer.
• What is your legal opinion of Dare's plan?

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The Goal of Contract Remedies
• Primary goal of contract remedies: To fulfill

expectations and intentions of parties to
agreement; give them "benefit of the bargain"
negotiated

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Breach, Resale, and Cover
• Breach: Failure to honor the contract
• Money damages usually recovery of purchase price or lease
payments due; sometimes lost profit as well

• Resale: Sellers/lessors allowed to sell the goods to another
buyer or dispose of the goods when buyer is in breach and
goods not delivered
• Seller/lessor holds buyer/lessee liable for any loss
• Preferred remedy for nonbreaching sellers

• Cover: Substitute goods
• Must demonstrate good faith, pay a reasonable sum for the
substitute, act without delay, and purchase reasonable
substitutes

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Remedies Available to Sellers and
Lessors Under UCC
• When buyer/lessee is in breach, seller/lessor
can:

•
•
•
•

Cancel contract
Withhold delivery
Sell or otherwise dispose of goods
Sue to recover purchase price, lease payments
due, or some other measure of damages that give
seller/lessor benefit of bargain
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Liquidated Damages
• Definition: Damages specified in contract before
breach occurs
• General rule: Parties free to negotiate, as part of
contract, a liquidated damages clause
• Courts will enforce liquidated damages clause,
provided it is reasonable and not punitive
• UCC Section 2-718: Allows nonbreaching seller
to claim against breaching buyer twenty percent
of purchase price or $500, whichever is less, as
liquidated damages

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Remedies Available to Buyers and

Lessees Under UCC
• When seller/lessor is in breach, buyer/lessee can:
•
•
•
•
•
•
•
•

Cancel contract
Obtain cover (substitute goods)
Sue to recover damages
Recover goods
Obtain specific performance
Reject nonconforming goods
Revoke acceptance of nonconforming goods
Accept nonconforming goods and seek damages
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Elements Necessary to
Obtain Legal Cover
• Buyer must:
• Demonstrate good faith in obtaining
substitute goods
• Pay reasonable amount for substitute goods
• Act without unreasonable delay in
purchasing substitute goods

• Purchase goods that are reasonable
substitutes

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Modification/Limitations to
Remedies Provided by UCC
• Parties to sales and lease contracts are
allowed to modify/limit remedies
• Courts uphold modifications/limitations to
remedies unless remedies fail in their
essential purpose

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Chapter 24 Hypothetical Case 3
• Hale Hatfield is a banjo player. Hatfield wants to purchase a new banjo for his appearance at the
local Bluegrass in the Park festival scheduled for August 15. On June 1, Hatfield orders a Timber
Rattler banjo from Cates Banjo Company. The Timber Rattler is custom-made, and the contract
specifies a purchase price of $4,000. The contract indicates a delivery date of August 10, allowing
ample time for production of the banjo and for Hatfield to make his gig.
August 10 comes and goes, and Cates Banjo fails to deliver the instrument. When Hatfield contacts
the owner of Cates Banjo, Richmond Cates, he learns that the non-delivery was due to a backlog of
orders. Hatfield knows that he can ill afford to wait for his Timber Rattler, so he cancels his contract
with Cates Banjo.
On August 12, Hatfield orders a pre-produced banjo from Babson Instruments, Inc., at a contract
price of $6,000. By rush delivery, the Babson banjo arrives at Hatfield's home on August 14, and he
is able to make the Bluegrass in the Park festival with banjo in hand. By Hatfield's estimation, the

Babson instrument is not a true substitute for the Timber Rattler, but he is willing to keep it and is
reasonably satisfied with it.
Hatfield's neighbor is an attorney. Hatfield shares the above facts with his neighbor and asks him if
he will take the case, suing Cates Banjo for $2,000 (the difference between the price of the Cates
banjo and the Babson banjo) plus associated expenses of litigation.
• Should the attorney take the case? Will Hatfield win?

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Chapter 24 Hypothetical Case 4
• Regina Cotswold hired a contractor to remodel her kitchen, but she was
dissatisfied with the cabinet makers that her contractor normally worked with.
Instead, she contracted directly with Billings Cabinet Works to build a custom set
of cabinets for her kitchen. Cotswold made sure that the contract was very
specific, including detailed descriptions of the type of wood and cabinet
hardware to be used, the style of the cabinet doors, and that the cabinets were
to be three inches lower than standard kitchen cabinets, as all the Cotswold
family members were of small stature.
Billings delivered and installed the cabinets on time, while Cotswold was not
home but the general contractor who was handling the kitchen remodel was on
site. When Cotswold arrived to see the cabinets, she was horrified to see that
they were standard height. The incorrectly sized cabinets had deep and
expensive ramifications on the rest of her kitchen remodel.
• Is Billings in breach? If so, what types of remedies are available to Cotswold?

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