Chapter 15: Sales and Lease Contracts: Performance, Warranties, and Remedies

Chapter 15Sales and Lease Contracts: Performance, Warranties, and RemediesThe Basic UCC Performance ObligationSellers and lessors are obligated to transfer and deliver conforming goodsBuyers and lessees are obligated to accept and pay for conforming goods in accordance with terms of contract“Good faith” required in performance and enforcement of every contract“Good Faith”Definition: Honesty in factIn transaction between merchants, UCC also imposes obligation of reasonable commercial standards of fair dealing (“commercial reasonableness”)“Perfect Tender” RuleStates that if goods or tender of delivery fail in any respect to conform to contract, buyer/lessee has right to: 1) accept the goods; 2) reject entire shipment; or 3) accept part and reject partExceptions to “Perfect Tender” RuleIndustry StandardsPrior Dealings Between PartiesExceptions Outlined in Parties’ AgreementSeller’s/Lessor’s Right to CureDestroyed Goods“Substantial Impairment”“Commercial Impracticability”“Commercial Impracticability” DoctrineDelay in delivery or non-delivery may not, in court’s discretion, constitute breach if performance made impracticable because contingency has occurred that was not contemplated when parties reached agreementInspection, Rejection and Revocation of AcceptanceSeller/lessor must provide buyer opportunity to inspect goods“Reasonableness” governs inspection processPost-inspection, buyer has option to accept, partially accept, reject, or revoke acceptance-UCC guidelines govern right to exercise particular options post-inspectionBuyers/lessees must give reasonable notice upon exercising right of rejection/revocation of acceptanceWarrantiesWarrantyDefinition: Seller’s promise(s) regarding certain characteristics of good(s) sold“Express” Warranty Versus “Implied” WarrantyExpress Warranty: Explicitly stated in contractImplied Warranty: Automatically (by operation of law) applied to contractTypes of WarrantiesWarranties of TitlePassage of good titleImplied promise of no liens/judgments against titleImplied promise that title not subject to claims of intellectual property (copyright, patent, or trademark) infringementTypes of WarrantiesExpress WarrantiesDescription of good’s physical nature or its use May be found in advertisements or brochuresMay be material term of contractSalesperson’s oral promise concerning good can give rise to express warrantyBuyer’s reliance on seller’s representations generally means those representations become express warranties, and part of contractTypes of Warranties: Implied WarrantiesImplied Warranty of Merchantability (Definition): Warranty based on reasonable expectation of product performanceGood purchased must:-Pass without objection in trade/market for similar goods-Be of fair quality (within the product’s description)-Be fit for “ordinary use”-Have “even kind, quality and quantity”-Be adequately packaged and labeled-Conform to promises made on package/product labelTypes of Warranties: Implied WarrantiesImplied Warranty of Fitness For Particular Purpose (Definition): Warranty that arises when seller knows purpose for which buyer purchasing goods, and buyer relies on seller’s judgment to recommend/select certain productSeller does not have to be merchant to make this warrantyTypes of Warranties: Implied WarrantiesImplied Warranty of Trade Usage(Definition): Warranty that arises as result of generally-accepted trade practicesWarranty Rights of Third Parties: Third Party Beneficiaries of WarrantiesSeller’s warranties may extend to:Buyer’s household members and guestsAny “reasonable and foreseeable” userAnyone injured by goodWarranty Disclaimers and WaiversMethods of Disclaiming/Waiving Warranties:Seller does not make express warrantiesSeller disclaims implied warranties in clear, unambiguous, conspicuous languageBuyer fails/refuses to examine goodsBuyer fails to file suit within applicable statute of limitations periodUCC Remedies Available to Seller/Lessor When Buyer/Lessee In Breach of ContractCancel ContractWithhold DeliveryResell/Dispose Of GoodsSue to Recover “Benefit of Bargain”Stop DeliveryReclaim GoodsUCC Remedies Available to Buyer/Lessee When Seller/Lessor In Breach of ContractCancel ContractObtain “Cover”Sue to Recover DamagesRecover GoodsObtain “Specific Performance”Reject Non-Conforming GoodsRevoke Acceptance of Non-Conforming GoodsAccept Non-Conforming Goods and Seek DamagesLiquidated DamagesDefinition: Damages identified before contract breach occursGeneral Rule: Parties are free to negotiate a liquidated damages contract clauseGeneral Rule: Courts will enforce liquidated damages provisions, so long as they are non-punitiveUCC Section 2-718: Allows non-breaching seller to claim against breaching buyer 20% of purchase price or $500, whichever is less, as liquidated damagesModifications/Limitations to Remedies Otherwise Provided by the Uniform Commercial CodeGeneral Rule: Parties to sales and lease contracts are allowed to modify/limit remediesUCC Sections 2-719 and 2A-503 provide that parties are allowed to create an agreement making it clear the remedies outlined by their agreement are the exclusive remedies available to themCourts generally uphold modifications/limitations to remedies unless stipulated remedies “fail in their essential purpose”