This is “Summary and Exercises”, section 15.6 from the book The Legal Environment and Business Law: Master of Accountancy Edition (v. 1.0).
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As with most of the Uniform Commercial Code (UCC), the parties may specify the terms of their performance. Only if they fail to do so does Article 2 (and 2A) provide the terms for them. The seller’s duty is to make a timely delivery of conforming goods. In the absence of agreement, the time for delivery is a reasonable one, and the place of delivery is the seller’s place of business. All goods must be tendered in a single delivery, unless circumstances permit either party the right to make or demand delivery in lots.
If the seller ships nonconforming goods but has time to meet his contractual obligations or if he reasonably believed the goods would be suitable, he may notify the buyer of his intention to cure, and if he does so in a timely manner the buyer must pay.
The buyer’s general obligation is to inspect, accept, and pay. If an inspection reveals that the goods are nonconforming, the buyer may reject them; if he has accepted because defects were latent or because he received assurances that the defects would be cured, and they are not, the buyer may revoke his acceptance. He then has some duties concerning the goods in his possession. The buyer must pay for any conforming goods; payment may be in any manner consistent with current business customs. Payment is due at the time and place at which the buyer will ultimately receive the goods.
The general policy of the UCC is to put an aggrieved party in as good a position as she would have been had the other party fully performed. The parties may specify or limit certain remedies, but they may not eliminate all remedies for a breach. However, if circumstances make an agreed-on remedy inadequate, then the UCC’s other remedies apply; parties may not unconscionably limit consequential damages; they may agree to liquidated damages, but not to unreasonable penalties.
In general, the seller may pursue the following remedies: withhold further delivery, stop delivery, identify to the contract goods in her possession, resell the goods, recover damages or the price, or cancel the contract. In addition, when it becomes apparent that the buyer is insolvent, the seller may, within certain time periods, refuse to deliver the remaining goods or reclaim goods already delivered.
The buyer, in general, has remedies. For goods not yet received, she may cancel the contract; recover the price paid; cover the goods and recover damages for the difference in price; or recover the specific goods if they are unique or in “other proper circumstances.” For goods received and accepted, the buyer may recover ordinary damages for losses that stem from the breach and consequential damages if the seller knew of the buyer’s particular needs and the buyer could not reasonably cover.
The UCC provides some excuses for nonperformance: casualty of the goods, through no fault of either party; the nonhappening of presupposed conditions that were a basic assumption of the contract; substituted performance if the agreed-on methods of performance become impracticable; right to adequate assurances of performance when reasonable grounds for insecurity of performance arise; anticipatory repudiation and resort to any remedy, before time for performance is due, is allowed if either party indicates an unwillingness to perform.
Anne contracted to sell one hundred cans of yellow tennis balls to Chris, with a delivery to be made by June 15.
In 1961, Dorothy and John Wilson purchased a painting from Hammer Galleries titled Femme Debout. It cost $11,000 (about $78,000 in 2010 dollars) and came with this promise: “The authenticity of this picture is guaranteed.” In 1984, an expert deemed the painting a fake. The district court held that the Wilsons’ suit for breach of warranty, filed in February 1987—twenty-one years after its purchase—was barred by the UCC’s four-year statute of limitations. The Wilsons argued, however, that the Code’s exception to the four-year rule applied:Uniform Commercial Code, Section 2-725(2). “A breach of warranty occurs when tender of delivery is made, except where a warranty explicitly extends to future performance and discovery must await the time of such performance the cause of action accrues when the breach is or should have been discovered.”
They said the painting “performed” by being an authentic Vuillard—a French artist—and that the warranty of authenticity not only guaranteed the present “being” of the painting but also extended, as required by 2-725(2), to the future existence as a Vuillard. Therefore, they contended, explicit words warranting future performance would be superfluous: a warranty that promises authenticity “now and at all times in the future” would be redundant. How should the court rule?
Speedi Lubrication Centers Inc. and Atlas Match Corp. entered into a contract that provided for Speedi to buy 400,000 advertising matchbooks from Atlas, to be paid for within thirty days of delivery of each shipment. Orders for such matches required artwork, artists’ commissions, and printing plates. Atlas sent twenty-two cases of matches to Speedi with an invoice showing $2,100 owed. Almost ninety days later, Speedi sent Atlas a check for $1,000, received the same day Atlas sent Speedi a letter declaring Speedi to be in material breach of the contract. A second check for $1,100 was later received; it bounced but was later replaced by a cashier’s check. The contract provided that an untimely payment was a breach, and it included these provisions related to liquidated damages:
Atlas shall have the right to recover from Purchaser the price of all matchbooks and packaging delivered and/or identified to this agreement at the time of Purchaser’s breach hereof and shall be additionally entitled to recover fifty percent (50%) of the contract price of matchbooks and/or packaging ordered hereby, but not delivered or identified to this Agreement at the time of Purchaser’s breach. Purchaser agrees that the percentage as specified hereinabove…will be reasonable and just compensation for such breach, and Purchaser hereby promises to pay such sum as liquidated damages, not as penalty in the event of any such breach.
On appeal, Speedi complained that the liquidated damages clause was a penalty. Is the matter settled by the contract saying the liquidated damages are reasonable? On what criteria would a court determine whether liquidated damages are reasonable?
In the absence of agreement, the place of delivery is
The UCC’s statute of limitations is
Under the UCC, if the buyer breaches, the seller can
If the seller breaches, the buyer can generally
Following a seller’s breach, the buyer can recover the price paid