Chapter 23 LGLS Book

Sales Remedies
CHAPTER OUTCOMES
Remedies . . . shall be liberally adminis After reading and studying this chapter, you should be able to:
tered to the end that the aggrieved party
may beput in as good a position as ifthe 1. Identify and explain the goods-oriented remedies of the seller and the buyer.
other party hadfidlyperformed. 2. Identify and explain the obligation-oriented remedies of the seller and the buyer.
Uniform Commercial Code 3. Identify and explain the money-oriented damages of the seller and the buyer.
4. Identify and explain the "specific performance" remedies of the seller and the buyer.
5. Describe the basic types of contractual provisions affecting remedies and the limitations that
the Uniform Commercial Code imposes upon those provisions.
A
contract for the sale of goods may be completely performed at one time or may be per
PracticalAdvice
formed in stages, according to the parties' agreement. At any stage, one of the parties
Conside r including in your may repudiate the contract, may become insolvent, or may breach the contract by fail
contracts provisions for ing to perform her obligations under it. In a sales contract, breach may consist of the
(1) the recovery of
attorneys' fees in the event seller's delivering defective goods, too few goods, the wrong goods, or no goods. T he buyer may
ofbreach of contract breach by not accepting conforming goods or by failing to pay for conforming goods that she has
and (2) the a rbitration of accepted. Breach may occur when the goods are in the possession of the seller, in the possession of
cont ract disputes. a bailee of the buyer, in transit to the buyer, or in the possession of the buyer.
Remedies, therefore, need to address not only the type of breach of contract but also the sit
uation with respect to the goods. Consequently, the Uniform Commercial Code (UCC) provides
separate and distinct remedies for the seller and for the buyer, each specifically keyed to the type of
breach and the situation of the goods.
In all events, the purpose of the Code is to put the aggrieved party in a position as good as the
one she would have been in had the other party fully performed. To accomplish this purpose, the
Code has provided that the courts should liberally administer its remedies. Moreover, damages do
not have to be "calculable with mathematical precision"; they simply must be proved with "what
ever definiteness and accuracy the facts permit, but no more:' The purpose of remedies under the
Code is compensation; therefore, punitive damages generally are not available.
Finally, the Code has rejected the doctrine of election of remedies. Essentially, the Code pro
vides that remedies for breach are cumulative. Whether one remedy bars another depends entirely
on the facts of the individual case.
CI S G According to the United Nations Convention on CISG, damagesfor breach of contract by one party
consist of a sum equal to the loss, including loss ofprofit, suffered by the other party as a consequence
of the breach. Such damages may not exceed the loss which theparty in breachforesaw or should have
409
410 PART IV Sales
foreseen at the time ofthe conclusion ofthe contract as a possible consequence ofthe breach ofcontract.
The aggrieved party must take such measures as are reasonable in the circumstances to mitigate the loss,
including loss ofprofit, resulting from the breach. Ifhe fails to take such measures, the party in breach
may claim a reduction in the damages in the amount by which the loss should have been mitigated.
REMEDIES OF THE SELLER [23-1]

A buyer's default in performing any of his contractual obligations deprives the seller of the rights
Buyer's default for which he bargained. A buyer's default may consist of any of the following acts: wrongfully
the seller's remedies are trig rejecting the goods, wrongfully revoking acceptance of the goods, failing to make a payment due
gered by the buyer's action in on or before delivery, or repudiating (indicating an intention not to perform) the contract in whole
wrongfully rejecting or revok or in part. (Article 2A.) The Code catalogs the seller's remedies for each of these defaults. (Article
ing acceptance of the goods, 2A has a comparable set of remedies for the lessor.) These remedies allow the seller to (1) withhold
in failing to make payment delivery of the goods, (2) stop delivery of the goods by a carrier or other bailee, (3) identify to
due on or before delivery, or the contract conforming goods not already identified, (4) resell the goods and recover damages,
in repudiating the contract (5) recover damages for nonacceptance of the goods or repudiation of the contract, (6) recover
the price, (7) recover incidental damages, (8) cancel the contract, and (9) reclaim the goods on the
buyer's insolvency.
Under Article 2A, a lessor also may recover compensation for any loss of or damage to the
lessor's residual interest in the goods caused by the lessee's default.
The first three and the ninth remedies indexed above are goods oriented-that is, they relate
to the seller's exercising control over the goods. The fourth through seventh remedies are money
oriented because they provide the seller with the opportunity to recover monetary damages. The
eighth remedy is obligation oriented because it allows the seller to avoid his obligation under the
contract.
Moreover, if the seller delivers goods on credit and the buyer fails to pay the price when due,
the seller's sole remedy, unless the buyer is insolvent, is to sue for the unpaid price. If, however, the
buyer received the goods on credit while insolvent, the seller may be able to reclaim the goods.
The Code defines insolvency to include both its equity meaning and its bankruptcy meaning. The
Insolvency (equity) equity meaning of insolvency is the inability to pay debts in the ordinary course of business or as
inability to pay debts in ordi they become due. The bankruptcy meaning of insolvency is that total liabilities exceed the total
nary course of business or as value of all assets.
they become due As noted, the Code's remedies are cumulative. Thus, by way of example, an aggrieved seller
Insolvency (bankruptcy) may (1) identify goods to the contract and (2) withhold delivery and (3) resell or recover dam
total liabilities exceed total ages for nonacceptance or recover the price and (4) recover incidental damages and (5) cancel the
value of assets contract.
CI S G If the buyer fails to perform any of his obligations under the contract or the CISG, the seller may
(1) require the buyer to pay the price or (2) fix an additional period oftime of reasonable length for
the buyer to perform his obligations. Unless the seller has received notice from the buyer that she will
notperform within the period so fixed, the seller may not, during that period, resort to any remedy for
breach ofcontract. Moreover, ifthe buyer's breach is fundamental or the buyer Jails to perform within
the additional time granted by the seller, the seller may avoid the contract. In addition to these reme
dies, the seller also has the right to damages.
Withhold Delivery of the Goods [23-1 a]

A seller may withhold delivery of goods to a buyer who has wrongfully rejected or revoked accep
tance of the goods, who has failed to make a payment due on or before delivery, or who has repu
diated the contract. (Article 2A.) This right is essentially that of a seller to withhold or discontinue
performance of her side of the contract because of the buyer's breach.
When the contract calls for installments, any breach of an installment that impairs the value of
the whole contract will permit the seller to withhold the entire undelivered balance of the goods. In
addition, on discovery of the buyer's insolvency, the seller may refuse to deliver the goods except
for cash, including payment for all goods previously delivered under the contract. (Article 2A.)
CHAPTER 23 Sales Remedies 411
Stop Delivery of the Goods [23-1 b]

Stop delivery An extension of the right to withhold delivery is the right of an aggrieved seller to stop delivery
if the buyer is insolvent (one of goods in transit to the buyer or in the possession of a bailee. A seller who discovers that the
who is unable to pay his debts buyer is insolvent may stop any delivery. If the buyer is not insolvent but repudiates or other
as they become due or one wise breaches the contract, the seller may stop carload, truckload, planeload, or larger shipments.
whose total liabilities exceed (Article 2A.) To stop delivery, the seller must notify the carrier or other bailee soon enough for the
his total assets), the seller bailee to prevent delivery of the goods. After this notification, the carrier or bailee must hold and
may stop any delivery; if the deliver the goods according to the directions of the seller, who is liable to the carrier or bailee for
buyer repudiates or other any charges or damages incurred. If a negotiable document of title has been issued for the goods,
wise breaches, the seller may the bailee need not obey a notification until surrender of the document.
stop carload, truckload, plane
load, or larger shipments Identify Goods to the Contract [23-1 c]
On a breach of the contract by the buyer, the seller may proceed to identify to the contract con
forming goods in her possession or control that were not so identified at the time she learned of
the breach. (Article 2A.) This enables the seller to exercise the remedy of resale of goods (dis
cussed in the next section). Furthermore, the seller may resell any unfinished goods that have
been demonstrably intended to fulfill the particular contract. The seller may either complete the
manufacture of unfinished goods and identify them to the contract or cease their manufacture and
resell the unfinished goods for scrap or salvage value. (Article 2A.) In so deciding, the seller must
exercise reasonable commercial judgment to minimize her loss.
Resell the Goods and Recover Damages [23-1 d]

Under the same circumstances that permit the seller to withhold delivery of goods to the buyer
(i.e., wrongful rejection or revocation, repudiation, or failure to make timely payment), the seller
Resell the goods may resell the goods concerned or the undelivered balance of the goods. If the resale is made in
the seller may resell the good faith and in a commercially reasonable manner, the seller may recover from the buyer the
goods concerned or the difference between the contract price and the resale price, plus any incidental damages (discussed
undelivered balance of the in a later section), minus expenses saved because of the buyer's breach. For example, Floyd agrees
goods and recover the differ to sell goods to Beverly for a contract price of $80,000 due on delivery. Beverly repudiates the con
ence between the contract tract and refuses to pay Floyd anything. Floyd resells the goods in strict compliance with the Code
price and the resale price, for $60,000, incurring incidental damages for sales commissions of $5,000 but saving $2,000 in
together with any incidental transportation costs. Floyd would recover from Beverly the difference between the contract price
damages, minus expenses ($80,000) and the resale price ($60,000), plus incidental damages ($5,000), minus expenses saved
saved ($2,000), which equals $23,000.
In a lease, the comparable recovery is the difference between the present values of the old rent
due under the original lease and the new rent due under the new lease. More specifically, the lessor
may recover ( 1) the accrued and unpaid rent as of the date of commencement of the new lease;
(2) plus the present value as of that date of total rent for the then-remaining term of the original
lease minus the present value, as of the same date, of the rent under the new lease applicable to a
comparable time period; (3) plus any incidental damages; (4) minus expenses saved because of the
lessee's breach.
The resale may be a public or private sale, and the goods may be sold as a unit or in parcels.
When the resale is a private sale, the seller must give the buyer reasonable notice of his intention
to resell. When the resale is at a public sale (such as an auction), it must be made at a usual place
or market for public sale if one is reasonably available. The seller must give the buyer reasonable
notice of the time and place of the resale, unless the goods are perishable or threaten to decline in
value speedily. In addition, the seller may be a purchaser of the goods at the public sale. In choos
ing between a public and private sale, the seller must observe relevant trade practices and usages
and take into account the character of the goods.
The seller is not accountable to the buyer for any profit made on any resale of the goods.
(Article 2A.) Moreover, a good faith purchaser at a resale takes the goods free of any rights of the
original buyer, even if the seller has failed to comply with one or more of the requirements of the
Code in making the resale. (Article 2A.)
Failure to act in good faith and in a commercially reasonable manner deprives the seller of
this remedy and relegates him to the remedy of recovering damages for nonacceptance or repudia
tion (discussed in the next section). (Article 2A.)
412 PART IV Sales
CIS G Ifthe contract is avoided and the seller has resold the goods in a reasonable manner and within a rea
sonable time after avoidance, he may recover the difference between the contract price and the resale
price. In addition, he may recover consequential damages.
Recover Damages for Nonacceptance or Repudiation [23-1 e]

In the event of the buyer's wrongful rejection or revocation, repudiation, or failure to make timely
Market price differential payment, the seller may recover damages from the buyer equal to the market price differential,
the seller may recover or the difference between the unpaid contract price and the market price at the time and place of
damages from the buyer tender of the goods, plus incidental damages, minus expenses saved because of the buyer's breach.
measured by the difef rence This remedy is an alternative to the remedy of reselling the goods.
between the unpaid contract In a lease, the comparable recovery is the difference between the present values of the old rent
price and the market price at due under the original lease and the market rent.
the time and place of tender For example, Joyce in Seattle agrees to sell goods to Maynard in Chicago for $20,000 F.O.B.
of the goods, plus incidental (free on board) Chicago, with delivery by June 15. Maynard wrongfully rejects the goods. The
damages, minus expenses market price would be ascertained as ofJune 15 in Chicago because F.O.B. Chicago is a destination
saved contract in which the place of tender would be Chicago. The market price of the goods on June
15 in Chicago is $15,000. Joyce, who incurred $1,000 in incidental expenses while saving $500 in
expenses, would recover from Maynard the difference between the contract price ($20,000) and
the market price ($15,000), plus incidental damages ($1,000), minus expenses saved ($500), which
equals $5,500.
If the difference between the contract price and the market price will not place the seller in as
Lost profit good a position as performance would have, then the measure of damages is the lost profit, that
in the alternative, the seller is the profit, including reasonable overhead, that the seller would have realized from full perfor
may recover the lost profit, mance by the buyer, plus any incidental damages, minus expenses the seller saved because of the
including reasonable over buyer' s breach. F or example, Green, an automobile dealer, enters into a contract to sell a large,
head, plus incidental damages, fuel-inefficient luxury car to Holland for $32,000. The price of gasoline increases 20 percent, and
minus expenses saved Holland repudiates. The market value of the car is still $32,000, but because Green cannot sell
as many cars as he can obtain, Green's sales volume has decreased by one as a result of Holland's
PracticalAdvice breach. Therefore, Green would be permitted to recover the profits he lost on the sale to Holland
Carefully consider whether (computed as the contract price, minus what the car costs Green, plus an allocation of overhead),
you are better off reselling plus any incidental damages. The Kenco Homes, Inc. v. Williams case further explains the compu
the goods, or instead seek tation of lost profits.
ing damages for nonaccep Article 2A has a comparable provision, except the profit is reduced to its present value since
tance or repudiation.
the lessor would have received it over the term of the lease.
CISG Ifthe contract is avoided and the seller has not made a resale, he may recover the difference between the
contract price and the current price at the time of avoidance and at the place where delivery ofgoods
should have been made. In addition, he may recover consequential damages.
Kenco Homes, Inc. v. Williams

Court of Appeals of Washington, Division Two, 1999
94 Wn.App. 219, 972 P.2d 125
FACTS Kenco buys mobile homes from the factory and sells The contract contained two pertinent conditions: the con
them to the consumer. Sometimes, it contracts to sell a home that tract would be enforceable only if Dale Williams (1) could obtain
the factory has not yet built. It has a virtually unlimited supply of financing and (2) later approved a bid for site improvements.
product. On September 27, 1994, Kenco Homes, Inc., and Dale E. Financing was to cover the cost of the mobile home and the cost of
and Debi A. Williams, husband and wife, signed a written contract the land. The contract provided, "I [Williams] understand that you
for the Williamses to buy from Kenco a mobile home that had not [Kenco] shall have all the rights of a seller upon breach of contract
yet been built . The price was $39,400, with $500 down. under the Uniform Commercial Code [UCC], except the right to
seek and collect 'liquidated damages' under Section 2-718." The the seller in as good a position as performance would have done,
contract further provided for reasonable attorneys' fees. In early then the second method of determining damages is used.
October, Williams accepted Kenco's bid for site improvements. As In this second method, the seller can receive any profit (includ
a result, the parties (1) formed a second contract and (2) removed ing reasonable overhead) which the seller would have made from
the first contract's site-improvement-approval condition. Also full performance by the buyer, together with incidental damages,
in early October, Williams received preliminary approval on the plus allowance for costs reasonably incurred, minus any payments
needed financing. or proceeds of resale.
Subsequently, Williams gave Kenco a $600 check so Kenco could In general, the adequacy of damages under the first method
order an appraisal of the land on which the mobile home would be depends on whether the nonbreaching seller has a readily available
located. Before Kenco could act, Williams stopped payment on the market on which he or she can resell the goods that the breaching
check and repudiated the entire transaction. His reason was that buyer should have taken. The seller cannot readily resell goods in cer
he "had found a better deal elsewhere:' When Williams repudiated, tain situations, such as (1) when the seller does not yet possess the
Kenco had not yet ordered the mobile home from the factory. After goods, but was planning to obtain them, (2) when the goods are of a
Williams repudiated, Kenco simply did not place the order. As a specialized nature for which there is not a ready market, and (3) when
result, Kenco's only out-of-pocket expense was a minor amount of the market conditions are such that a ready buyer is not available
office overhead. On November 1, 1994, Kenco sued Williams for without displacing another sale. (This is known as "lost volume:')
lost profits. In this case, Kenco did not order the breached goods before
The trial court found that Williams had breached the contract, Williams repudiated. After Williams repudiated, Kenco was not
causing Kenco to lose profits in the amount of $11,133 ($6,720 on required to order the breached goods from the factory. It right
the mobile home, and $4,413 on the site improvements). More fully elected not to do so and it could not resell the breached goods
over, the trial court held that Kenco was entitled to damages, but on the open market. Thus, the measure of damages under the
ruled that Kenco would be adequately compensated by retain first method is inadequate to put Kenco in as good a position as
ing Williams's $500 down payment. The trial court declared that Williams's performance would have done. Therefore, Kenco is enti
Williams was the prevailing party and that Williams should tled to its lost profit of $11,133.
receive reasonable attorneys' fees in the amount of $1,800. Kenco In addition, Kenco is entitled to reasonable attorneys' fees. The
appealed, claiming the trial court used an incorrect measure of parties' contract provided that the prevailing party would be enti
damages. tled to such fees. Kenco is the prevailing party.
DECISION Reversed with directions to enter an amended judg INTERPRETATION When the measure of damages based on
ment awarding Kenco its lost profit of $11,133 and reasonable the difference between the market price and the contract price
attorneys' fees incurred at trial and on appeal. does not put the seller in as good a position as performance would
OPINION Under the UCC, a nonbreaching seller may recover have done, then a nonbreaching seller is entitled to damages, which
"damages for nonacceptance" from a breaching buyer. These dam include the unrealized profit from the sale.
ages may be calculated in one of two ways. First, the seller may ETHICAL QUESTION Did either party act unethically?
receive the difference between the market price (upon resale of the Explain.
goods) and the unpaid contract price together with any inciden
tal damages, but less expenses saved in consequence of the buyer's CRITICAL THINKING QUESTION Do you agree with the
breach. If this first method of determining damages does not put Code's measure of damages for the "lost volume seller"? Explain.
Recover the Price [23-1 f]

Recover the price The Code permits the seller to recover the price plus incidental damages in three situations:
the seller may recover the (1) when the buyer has accepted the goods, (2) when conforming goods have been lost or damaged
price: (I) when the buyer has after the risk of loss has passed to the buyer, and (3) when the goods have been identified to the
accepted the goods, (2) when contract and there is no ready market available for their resale at a reasonable price. For example,
the goods have been lost or Kelly, in accordance with her agreement with Sally, prints ten thousand letterheads and envelopes
damaged after the risk of loss with Sally's name and address on them. Sally wrongfully rejects the stationery, and Kelly is unable
has passed to the buyer, or to resell it at a reasonable price. Kelly is entitled to recover the price plus incidental damages from
(3) when the goods have been Sally. For a case dealing with the seller's right to recover the price when the buyer has accepted the
identified to the contract goods, see Midwest Hatchery v. Doorenbos Poultry later in this chapter.
and there is no ready market Article 2A has a similar provision except that the lessor is entitled to ( 1) accrued and unpaid
available for their resale rent as of the date of the judgment, (2) the present value as of the judgment date of the rent for the
then remaining lease term, and (3) incidental damages less expenses saved.
A seller who sues for the price must hold for the buyer any goods that have been identified
to the contract and are still in her control. (Article 2A.) If resale becomes possible, the seller may
resell the goods at any time before the collection of the judgment, and the net proceeds of such
414 PART IV Sales
resale must be credited to the buyer. Payment of the judgment entitles the buyer to any goods
not resold. In a lease, payment of the judgment entitles the lessee to the use and possession of the
goods for the remaining lease term.
CISG The seller may require the buyer to pay the price, take delivery, or perform her other obligations, unless
the seller has resorted to a remedy that is inconsistent with this requirement.
Recover Incidental Damages [23-1 g]

In addition to recovering damages for the difference between the contract price and the resale
Seller's incidental price, recovering damages for nonacceptance or repudiation, or recovering the price, the seller also
damages may recover in the same action her incidental damages to recoup expenses she reasonably incurred
commercially reasonable as a result of the buyer's breach. The Code defines a seller's incidental damages to include any
charges, expenses, or commis commercially reasonable charges, expenses, or commissions incurred in stopping delivery; in the
sions directly resulting from transportation, care, and custody of goods after the buyer's breach; in connection with return or
breach resale of the goods; or otherwise resulting from the breach. Article 2A has an analogous definition.
PracticalAdvice Cancel the Contract [23-1 h]

As an aggrieved seller, When the buyer wrongfully rejects or revokes acceptance of the goods, fails to make a payment
maintain good records due on or before delivery, or repudiates the contract in whole or in part, the seller may cancel the
regarding incidental part of the contract that concerns the goods directly affected. If the breach is of an installment
damages you incurred. contract and it substantially impairs the whole contract, the seller may cancel the entire contract.
(Article 2A.)
Cancellation The Code defines cancellation as one party's putting an end to the contract because of a
one party's p utting an end breach by the other. (Article 2A.) The obligation of the canceling party for any future performance
to a contract because of a under the contract is discharged, although he retains any remedy for breach of the whole contract
breach by the other or for any unperformed balance. (Article 2A.) Thus, if the seller has the right to cancel, he may
recover damages for breach without having to tender any further performance.
CISG The seller may declare the contract avoided if (1) the buyer commits a fundamental breach or (2) the
buyer does not, within the additional period of time fixed by the seller, perform his obligation to pay
the price or take delivery ofthe goods. Avoidance ofthe contract releases both parties from their obliga
tions under it, subject to any damages that may be due. Avoidance does not affect any provision ofthe
contractfar the settlement of disputes or any other provision of the contract governing the rights and
obligations ofthe parties consequent upon the avoidance ofthe contract. A party who has performed the
contract either wholly or in part may claim restitution from the other party. Ifboth parties are bound
to make restitution, they must do so concurrently.
Reclaim the goods Reclaim the Goods upon the Buyer's Insolvency [23-1 i]
an unpaid seller may reclaim
In addition to the right of an unpaid seller to withhold and stop delivery of the goods, he may
goods from an insolvent
reclaim the goods from an insolvent buyer by demand made to the buyer within ten days after
buyer under certain
the buyer has received the goods. However, if the buyer has committed fraud by misrepresenting
circumstances
her solvency to the seller in writing within three months prior to delivery of the goods, the ten-day
PracticalAdvice limitation does not apply.
The seller's right to reclaim the goods is subject to the rights of a buyer in the ordinary course
If you wish to exercise
of business or to the rights of any other good faith purchaser. In addition, a seller who successfully
the seller's rights of
reclamation of goods reclaims goods from an insolvent buyer is excluded from all other remedies with respect to those
sold, you will need to act goods.
quickly. A lessor retains title to the goods and therefore has the right to recover possession of them
upon default by the lessee.
CONCEPT REVIEW 23-1
Remedies ofthe Seller
Seller's Remedies
Buyer's Breach Obligation Oriented Goods Oriented' Money Oriented2
Buyer Wrongfully Cancel Withhold delivery of goods Resell and recover damages
Rejects Goods Stop delivery of goods in transit Recover difference between
Identify conforming goods to the unpaid contract and market
contract prices or lost profits
Recover price
Buyer Wrongfully Cancel Withhold delivery of goods Resell and recover damages
Revokes Acceptance Stop delivery of goods in transit Recover difference between
Recover price
Buyer Fails to Make Cancel Withhold delivery of goods Resell and recover damages
Payment Stop delivery of goods in transit Recover difference between
Reclaim goods upon buyer's Recover price
insolvency
Buyer Repudiates Cancel Withhold delivery of goods Resell and recover damages
Stop delivery of goods in transit Recover difference between
Recover price
'In a lease, the lessor has the right to recover possession of the goods upon default by the lessee.
2
1n a lease, the lessor's recovery of damages for future rent payments is reduced to their present value.
REMEDIES OF THE BUYER [23-2]

Seller's default Basically, a seller's default may occur in one of three ways: she may repudiate, fail to deliver the
the buyer's remedies arise goods without repudiation, or deliver or tender goods that do not con form to the contract. (Arti
when the seller fails to make cle 2.A.) The Code provides remedies for each of these breaches. Some remedies are available for
delivery or repudiates the all three types of breaches, whereas others are not. Moreover, the availability of some remedies
contract, or when the buyer depends on the buyer's actions. For example, if the seller tenders nonconforming goods, the buyer
rightfully rejects or justifiably may reject or accept them. If the buyer rejects them, he can choose from a number of remedies.
revokes acceptance of goods On the other hand, if the buyer accepts the nonconforming goods and does not justifiably revoke
tendered or delivered his acceptance, he limits himself to recovering damages.
When the seller fails to make delivery or repudiates, or when the buyer rightfully rejects or
justifiably revokes acceptance, the buyer may, with respect to any goods involved, or with respect
to the whole if the breach goes to the whole contract, (1) cancel and (2) recover payments made.
In addition, the buyer may (3) "cover" and obtain damages or (4) recover damages for nondelivery.
When the seller fails to deliver or repudiates, the buyer, when appropriate, may also (5) recover
identified goods if the seller is insolvent or (6) "replevy" the goods or (7) obtain specific perfor
mance. Moreover, on rightful rejection or justifiable revocation of acceptance, the buyer (8) has a
security interest in the goods. When the buyer has accepted goods and notified the seller of their
416 PART IV Sales
Sales Remedies
Facts TRAC is a wholesaler of computer default. When faced with a buyer's default, stoppage in transit or reclamation-has any
hardware component parts. In late the seller has goods-oriented, money application here because the goods have
February,TRAC entered into a sales contract oriented, and obligation-oriented remedies not yet leftTRAC's possession. Withholding
with Gemini, a small manufacturer of available to it, all of which are cumulative delivery of the goods and identifying them
custom personal computers, for the sale to the extent they apply. Goods-oriented to the contract enables TRAC to exercise
of $10,000 worth of component parts. The remedies include identifying the goods its remedy of resale of the goods, which
written agreement required Gemini to pay to the contract ; withholding or stopping under current market conditions would
$2,000 on April 15, another $3,000 on May delivery of the goods; or if the buyer is yield a higher price than what Gemini had
15, and the remaining $5,000 on June 15, insolvent, reclaiming the goods. The seller's agreed to pay. As long as TRAC's incidental
with delivery of all components to Gemini's money-oriented remedies involve recovery damages, or reasonable costs of such a sale,
warehouse on or before May 30. of (1) damages after a commercially do not exceed the profitTRAC makes when
Gemini paid the $2,000 in March, but reasonable resale, (2) damages for it resells the goods, TRAC has suffered no
was unable to make the second deposit nonacceptance, or (3) the contract price damages. After returning Gemini's $2,000
payment of $3,000 on May 15. Soon thereaf and incidental and consequential damages. deposit, TRAC has exercised its remaining
ter, TRAC returned Gemini's $2,000 and noti If the goods are resold at a profit to the Code remedy, the obligation-oriented
fied Gemini in writing that it "considered the seller, however, he need not account to the remedy of cancellation. Cancellation
contract cancelled" and "did not intend to buyer for it. The seller's obligation-oriented effectively discharges TRAC of any further
perform any part of the February contract:' remedy is cancellation, which discharges obligation to Gemini.
The price of the component parts began the seller from any further obligation under
Conclusion TRAC may (1) withhold
to increase steadily in early March, and the the contract.
delivery of the goods to Gemini; (2) identify
goods can now be sold for 25 percent more.
Application Two of the four goods them to the contract; (3) resell them
Issue What areTRAC's rights and oriented remedies are available toTRAC. in a commercially reasonable manner,
obligations under this sales contract? It may both identify the goods to the resulting here in a profit for which it is not
contract, if it has not already done so, and accountable to Gemini; and (4) cancel the
Rule of Law A buyer who fails to make
withhold their delivery to Gemini. Neither of contract, resulting in a discharge ofTRAC's
a payment due on or before delivery is in
the other two goods-oriented remedies- performance under the contract.
nonconformity, the buyer may (9) recover damages for breach of warranty. Finally, in addition to
the remedies listed above, the buyer may, when appropriate, (10) recover incidental damages and
( 11) recover consequential damages. Article 2A provides for essentially the same remedies for the
lessee.
The first of these remedies is obligation oriented; the second through fourth and ninth
through eleventh are money oriented; and the fifth through eighth are goods oriented.
The buyer may deduct from the price due any damages resulting from any breach of contract
by the seller. The buyer must, however, give notice to the seller of her intention to withhold such
damages from payment of the price due. (Article 2A.)
CI S G If the seller fails to perform any of his obligations under the contract or the CISG, the buyer may
(1) require the seller to perform his contractual obligations or (2) fix an additional period of time of
reasonable lengthfor performance by the seller ofhis obligations. Unless the buyer has received notice
from the seller that he will not perform within the period so fixed, the buyer may not, during that
period, resort to any remedyfor breach ofcontract. Moreover, ifthe seller's breach isfundamental or the
seller fails to perform within the additional time granted by the buyer, the buyer may avoid the con
tract. In addition to these remedies, the buyer also has the right to damages. Ifthe goods do not conform
with the contract, the buyer may reduce the price in the same proportion as the value that the goods
actually delivered had at the time of the delivery bears to the value that conforming goods would have
had at that time.
Cancel the Contract [23-2a]

When the seller fails to make delivery or repudiates the contract or when the buyer rightfully
rejects or justifiably revokes acceptance of goods tendered or delivered to him, the buyer may can
cel the contract with respect to any goods involved; and if the breach by the seller concerns the
whole contract, the buyer may cancel the entire contract. (Article 2A.) The buyer, who must give
the seller notice of his cancellation, is excused from further performance or tender on his part.
(Article 2A.)
CISG The buyer may declare the contract avoided ifthe seller (1) commits a fundamental breach or (2) does
not deliver the goods within the additional period oftime fixed by the buyer. Avoidance ofthe contract
releases both parties from their obligations under it, subject to any damages that may be due. Avoid
ance does not affect any provision of the contract for the settlement of disputes or any other provision
ofthe contract governing the rights and obligations ofthe parties consequent upon the avoidance ofthe
contract. A party who has performed the contract either wholly or in part may claim restitution from
the other party. Ifboth parties are bound to make restitution, they must do so concurrently.
Recover Payments Made [23-2b]

The buyer, on the seller's breach, may also recover as much of the price as he has paid. For example,
Jonas and Sheila enter into a contract for a sale of goods for a contract price of $3,000, and Sheila,
the buyer, has made a down payment of $600. Jonas delivers nonconforming goods to Sheila, who
rightfully rejects them. Sheila may cancel the contract and recover the $600 plus whatever other
damages she can prove. Under Article 2A, the lessee may recover so much of the rent and security
as has been paid and is just under the circumstances.
Cover [23-2c]
Cover On the seller's breach, the buyer may protect herself by obtaining cover. Cover means that the
the buyer may obtain cover buyer may in good faith and without unreasonable delay proceed to purchase needed goods or
by proceeding in good faith make a contract to purchase such goods in substitution for those due under the contract from the
and without unreasonable seller. In a lease, the lessee may purchase or lease substitute goods.
delay to purchase substitute On making a reasonable contract of cover, the buyer may recover from the seller the difference
goods; the buyer may recover between the cost of cover and the contract price, plus any incidental and consequential damages
the difference between the (discussed later), minus expenses saved because of the seller's breach. For example, Phillip, whose
cost of cover and the con factory is in Oakland, agrees to sell goods to Edith, in Atlanta, for $22,000 F.O.B. Oakland.
tract price, plus any incidental Phillip fails to deliver, and Edith covers by purchasing substitute goods for $25,000, incurring
and consequential damages, $700 in sales commissions. Edith suffers no other damages as a consequence of Phillip's breach.
minus expenses saved Shipping costs from Oakland to Atlanta for the goods are $1,300. Edith would recover the differ
ence between the cost of cover ($25,000) and the contract price ($22,000), plus incidental damages
($700 in sales commissions), plus consequential damages ($0 in this example), minus expenses
saved (the $1,300 in shipping costs that Edith need not pay under the contract of cover), which
equals $2,400.
In a lease, the comparable recovery is the difference between the present values of the new
rent due under the new lease and the old rent due under the original lease.
The buyer is not required to obtain cover, and his failure to do so does not bar him from any
other remedy the Code provides. (Article 2A.) The buyer may not, however, recover consequential
damages that he could have prevented by cover. (Article 2A.)
CISG If the contract is avoided and the buyer has bought goods in replacement in a reasonable manner and
within a reasonable time after avoidance, he may recover the difference between the contract price and
the price paid in the substitute transaction. In addition, he may recover consequential damages.
418 PART IV Sales
j, Bigelow-Sanford, Inc. v. Gunny Corp.

United States Court of Appeals, Fifth Circuit, 1981
649 F.2d 1060
FACTS The plaintiff, Bigelow-Sanford, Inc., contracted with the the difference between the cost of cover and the contract price plus
defendant, Gunny Corp., for the purchase of 100,000 linear yards any incidental damages, but less expenses saved in consequence of
of jute at $0.64 per yard. Gunny delivered 22,228 linear yards in the seller's breach.
January 1979. The February and March deliveries required under Here, Gunny breached when it notified Bigelow-Sanford in
the contract were not made, and eight rolls (each roll containing February that no more jute would be delivered. Bigelow-San
66.7 linear yards) were delivered in April. With 72,265 linear yards ford made its first spot market purchases to cover by mid
ultimately undelivered, Gunny toldBigelow-Sanford that no more March. Thus, Bigelow-Sanford covered without undue delay.
would be delivered. In mid-March, Bigelow-Sanford turned to Since its purchases were also reasonable and made in good
the jute spot market to replace the balance of the order at a price faith, Bigelow-Sanford is entitled to damages. Bigelow did not
of $1.21 per linear yard, As several other companies had also specifically allocate the spot market replacements to the indi
defaulted on their jute contracts with Bigelow-Sanford, the plaintiff vidual sellers' accounts. Therefore, it is reasonable to determine
purchased a total of 164,503 linear-yards on the spot market. The the cost of cover by multiplying the average cost of the spot
plaintiff sued the defendant to recover losses sustained as a result of market purchases times the amount of jute Gunny had failed
the breach of contract. Gunny appealed from a judgment in favor to deliver.
ofBigelow-Sanford.
INTERPRETATION If the buyer makes substitute purchases in
DECISION Judgment for Bigelow-Sanford affirmed. good faith and without unreasonable delay, he may recover as dam
ages the difference between the cost of cover and the contract price
OPINION The Uniform Commercial Code permits a buyer to
plus any incidental damages, but minus any expenses he saved
"cover" his damages due to the seller's breach by purchasing goods
because of the seller's breach.
in substitution for those due from the seller. The buyer, however,
must make the substitute purchases in good faith and without CRITIC AL THINKING QUESTION Do you agree with the
unreasonable delay. If he does so, the buyer may recover as damages remedy of cover? Explain.
Recover damages for non Recover Damages for Nondelivery or Repudiation [23-2d]
delivery or repudiation If the seller repudiates the contract or fails to deliver the goods or if the buyer rightfully rejects
the buyer may recover the or justifiably revokes acceptance of the goods, the buyer is entitled to recover damages from
difference between the the seller equal to the difference between the market price at the time the buyer learned of
market price at the time the the breach and the contract price, together with incidental and consequential damages, minus
buyer learned of the breach expenses saved because of the seller's breach. This remedy is a complete alternative to the rem
and the contract price, plus edy of cover and is available only to the extent the buyer has not covered. As previously indi
any incidental and conse cated, the buyer who elects this remedy may not recover consequential damages that she could
quential damages, but minus have avoided by cover.
expenses saved In a lease, the comparable recovery is the difference between the present values of the market
rent and the old rent due under the original lease.
The market price is to be determined as of the place for tender or, in the event the buyer has
rightfully rejected the goods or has justifiably revoked his acceptance of them, as of the place of
arrival. For example,Janet, in Boston, agrees to sell goods to Laura, in Denver, for $7,000 C.O.D.
(collect on delivery), with delivery by November 15. Janet fails to deliver. As a consequence,
Laura suffers incidental damages of $1,500 and consequential damages of $1,000. In the case of
nondelivery or repudiation, market price is determined as of the place of tender. Because C.O.D.
is a shipment contract, the place of tender would be the seller's city. Therefore, the market price
must be the market price in Boston, the seller's city, on November 15, when Laura learned of
the breach. At this time and place, the market price is $8,000. Laura would recover the differ
PracticalAdvice
ence between the market price ($8,000) and the contract price ($7,000), plus incidental damages
Carefully consider whether ($1,500), plus consequential damages ($1,000), minus expenses saved ($0 in this example), which
you are better off covering equals $3,500.
or seeking damages for
In the previous example, if Janet had instead delivered nonconforming goods that Laura
nondelivery or repudiation.
rejected, the market price would be determined at Denver, Laura's place of business; ifJanet had
repudiated the contract on November 1, instead of November 15, then the market price would be
determined as of November 1.
In a lease, market rent is to be determined as of the place for tender or, in cases of rejection
after arrival or revocation of acceptance, as of the place of arrival.
CISG If the contract is avoided and the buyer has not made a replacement purchase, he may recover the
difference between the contract price and the current price at the time of avoidance and at the
place where delivery of the goods should have been made. In addition, he may recover consequen
tial damages.
Recover identified goods Recover Identified Goods on the Seller's Insolvency [23-2e]
on the seller's insolvency When existing goods are identified to the contract of sale, the buyer acquires a special property
for which the buyer has paid interest in the goods. This interest exists even if the goods are nonconforming and the buyer there
all or part of the price fore has the right to return or reject them. Either the buyer or the seller may identify the goods to
the contract.
The Code gives the buyer a right, which does not exist at common law, to recover from an
insolvent seller the goods in which the buyer has a special property interest and for which he has
paid part or all of the price. This right exists in cases in which the seller, who is in possession or
control of the goods, becomes insolvent within ten days after receiving the first installment of the
price. To exercise this right, the buyer must tender to the seller any unpaid portion of the price.
If the special property interest exists by reason of an identification made by the buyer, he may
recover the goods only if they conform to the contract for sale. (Article 2A.)
Sue for Replevin [23-2f]

Replevin Replevin is an action at law to recover from a defendant's possession specific goods that are being
the buyer may recover goods unlawfully withheld from the plaintiff. When the seller has repudiated or breached the contract,
identified to the contract if the buyer may maintain against the seller an action for replevin for goods that have been identified
(I) the buyer is unable to to the contract if the buyer after a reasonable effort is unable to obtain cover for such goods. (Arti
obtain cover or (2) the goods cle 2A.) Article 2 also provides the buyer with the right to replevin if the goods have been shipped
have been shipped under res under reservation of a security interest in the seller and satisfaction of this security interest has
ervation of a security interest been made or tendered.
in the seller
Sue for Specific Performance [23-2g]
Specific performance Specific performance is an equitable remedy compelling the party in breach to perform the con
equitable remedy compelling tract according to its terms. At common law, specific performance is available only if legal reme
the party in breach to dies are inadequate. For example, when the contract is for the purchase of a unique item, such as a
perform the contract work of art, a famous racehorse, or an heirloom, money damages may not be an adequate remedy.
according to its terms In such a case, a court of equity has the discretion to order the seller specifically to deliver to the
buyer, on payment of the price, the goods described in the contract.
The Code not only has continued the availability of specific performance but also has sought
to promote a more liberal attitude toward its use. Accordingly, it does not expressly require that the
remedy at law be inadequate. Instead, the Code states that specific performance may be granted
"where the goods are unique or in other proper circumstances:' (Article 2A.)
CJSG The buyer may require the seller to perform his contractual obligations. If the goods do not conform
to the contract and the nonconformity constitutes a fundamental breach of contract, the buyer may
require delivery ofsubstitute goods. If the goods do not conform to the contract, the buyer may require
the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all
the circumstances. Nevertheless, a court is not bound to enter a judgment for specific performance
unless a court would do so under its own law with respect to similar contracts ofsale not governed by
the CISG.
420 PART IV Sales
Enforce a security interest Enforce a Security Interest in the Goods [23-2h]

a buyer who has rightfully A buyer who has rightfully rejected or justifiably revoked acceptance of goods that remain in her
rejected or justifiably revoked possession or control has a security interest in these goods for any payments made on their price
acceptance of goods that and for any expenses reasonably incurred in their inspection, receipt, transportation, care, and
remain in her possession has custody. The buyer may hold such goods and resell them in the same manner as an aggrieved
a security interest in these seller may resell goods. (Article 2A.) In the event of resale, the buyer is accountable to the seller
goods for any payments made for any amount of the net proceeds of the resale that exceeds the amount of her security interest.
on their price and for any (Article 2A.)
expenses reasonably incurred
Recover Damages for Breach in Regard to Accepted
Goods [23-2i]
Recover damages for When the buyer has accepted nonconforming goods and has timely notified the seller of the breach
breach in regard to of contract, the buyer is entitled to recover from the seller the damages resulting in the ordinary
accepted goods course of events from the seller's breach as determined in any reasonable manner. (Article 2A.)
the buyer may recover When appropriate, the buyer may also recover incidental and consequential damages. Nonconfor
damages resulting in the mity includes breaches of warranty as well as any failure of the seller to perform according to her
ordinary course of events obligations under the contract. Thus, even if a seller cures a nonconforming tender, the buyer may
from the seller's breach; recover under this section for any injury suffered because the original tender was nonconforming.
in the case of breach of For a case dealing with the buyer's right to recover the damages when the buyer has accepted non
warranty, such recovery conforming goods, see Midwest Hatchery v. Doorenbos Poultry later in this chapter.
is the difference between In the event of breach of warranty, the measure of damages is the difference at the time and
the value the goods would place of acceptance between the value of the goods that have been accepted and the value that the
have had if they had been as goods would have had if they had been as warranted, unless special circumstances show proximate
warranted and the value of damages of a different amount. Article 2A has a comparable provision, except the recovery is for
the nonconforming goods the present value of the difference between the value of the use of the goods accepted and the
that have been accepted value if they had been as warranted for the lease term.
The contract price of the goods does not figure in this computation �ecause the buyer is enti
tled to the benefit of his bargain, which is to receive goods that are as warranted. For example,
Eleanor agrees to sell goods to Timothy for $1,000. Although the value of the goods accepted by
Timothy is $800, if they had been as warranted, their value would have been $1,200. Timothy's
damages for breach of warranty are $400, which he may deduct from any unpaid balance due on
the purchase price upon notice to Eleanor of his intention to do so. (Article 2A.)
Recover Incidental Damages [23-2j]

Buyer's incidental In addition to remedies such as covering, recovering damages for nondelivery or repudiation,
damages or recovering damages for breach in regard to accepted goods, including breach of warranty, the
reimbursement for reasonable buyer may recover incidental damages. A buyer's incidental damages provide reimbursement
expenses incurred in handling for the buyer who incurs reasonable expenses in handling rightfully rejected goods or in effect
rightfully rejected goods or in ing cover. The buyer's incidental damages resulting from the seller's breach include expenses rea
effecting cover sonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully
rejected; any commercially reasonable charges, expenses, or commissions in connection with
PracticalAdvice
obtaining cover; and any other reasonable expense connected to the delay or other breach. Arti
As an aggrieved buyer, cle 2A has an analogous definition. For example, the buyer of a racehorse who justifiably revokes
maintain good records acceptance because the horse does not conform to the contract will be allowed to recover as inci
regarding incidental
dental damages the cost of caring for the horse from the date the horse was delivered until the
damages you incurred.
buyer returns it to the seller.
Recover Consequential Damages [23-2k]

Consequential damages In many cases, the buyer's remedies previously discussed will not fully compensate the aggrieved
include (I) any loss resulting buyer for her losses. For example, nonconforming goods that are accepted may in some way dam
from buyer's requirements age or destroy the buyer's warehouse and its contents, or undelivered goods may have been the
of which seller had reason to subject of a lucrative contract of resale, the profits from which are now lost. The Code responds
know at the time of contract to this problem by providing the buyer with the opportunity to recover consequential damages
ing and (2) injury to person resulting from the seller's breach, including (1) any loss resulting from the buyer's requirements
or property proximately and needs of which the seller at the time of contracting had reason to know and which the buyer
resulting from any breach of could not reasonably prevent by cover or otherwise and (2) injury to person or property proxi
warranty mately resulting from any breach of warranty. (Article 2A.)
CONCEPT REVIEW 23-2
Remedies ofthe Buyer

Buyer's Remedies
Seller's Breach Obligation Oriented Goods Oriented Money Oriented·
Buyer Rightfully Cancel • Have a security interest Recover payments made

Rejects Goods Cover and recover damages
Recover damages for nondelivery
Buyer Justifiably Cancel • Have a security interest Recover payments made

Revokes Acceptance Cover and recover damages
Recover damages for nondelivery
Seller Fails to Deliver Cancel Recover identified goods if seller is Recover payments made
insolvent Cover and recover damages
Replevy goods Recover damages for nondelivery
Obtain specific performance
Seller Repudiates Cancel Recover identified goods if seller is Recover payments made
insolvent Cover and recover damages
Replevy goods Recover damages for nondelivery
Obtain specific performance
Buyer Accepts Recover damages for breach of

Nonconforming Goods warranty
*In a lease, the lessee's recovery of damages for future rent payments is reduced to their present value.
With respect to the first type of consequential damages, particular needs of the buyer usually
must be made known to the seller, whereas general needs usually need not be. In the case of a buyer
who is in the business of reselling goods, resale is one requirement of which the seller has reason
to know. For example, Supreme Machine Co., a manufacturer, contracts to sell Allied Sales, Inc., a
dealer in used machinery, a used machine that Allied plans to resell. After Supreme repudiates and
Allied is unable to obtain a similar machine elsewhere, Allied's damages include the net profit that
PracticalAdvice it would have made on resale of the machine. A buyer may not, however, recover consequential
damages he could have prevented by cover. (Article 2A.) For instance, Supreme Machine Co.
As the buyer, be sure to
inform the other party to
contracts to sell Capitol Manufacturing Co. a used machine for $10,000 to be delivered at Capitol's
the con tract of any factory by June 1. Supreme repudiates the contract on May 1. By reasonable efforts, Capitol could
"particular needs" beyond buy a similar machine from United Machinery, Inc., for $11,000 in time for a June 1 delivery.
the ordinary course of Capitol fails to do so, losing a $5,000 profit that it would have made from the resale of the machine.
events that could result Though it can recover $1,000 from Supreme, Capitol's damages do not include the loss of the
from a breach of contract.
$5,000 profit.
An example of the second type of consequential damage would be as follows: Federal Machine
Co. sells a machine to Southern Manufacturing Co., warranting its suitability for Southern's
purpose. However, the machine is not suitable for Southern's purpose and causes $10,000 in damage
to Southern's property and $15,000 in personal injuries. Southern can recover the $25,000 in
consequential damages in addition to any other loss suffered.
CONTRACTUAL PROVISIONS AFFECTING

REMEDIES [23-3]
Within specified limits, the Code permits the parties to a sales contract to modify, exclude, or
limit by agreement the remedies or damages that will be available for breach of that contract. Two
basic types of contractual provisions affect remedies: (1) liquidation or limitation of damages and
(2) modification or limitation of remedy.
422 PART IV Sales
Liquidation or limitation Liquidation or Limitation of Damages [23-3a]

of damages The parties may provide for liquidated damages in their contract by specifying the amount or mea
the parties may specify the sure of damages that either party may recover in the event of a breach by the other. The amount of
amount or measure of dam such damages must be reasonable in light of the anticipated or actual loss resulting from a breach,
ages that may be recovered the difficulties of proof of loss, and the inconvenience or lack of feasibility of otherwise obtaining
in the event of a breach if the an adequate remedy. A contract provision that fixes unreasonably large liquidated damages is void
amount is reasonable as a penalty. By comparison, an unreasonably small amount might be stricken on the grounds of
unconscionability.
To illustrate, Sterling Cabinetry Company contracts to build and install shelves and cabinets
for an office building being constructed by Baron Construction Company. The contract price is
PracticalAdvice $120,000, and the contract provides that Sterling would be liable for $100 per day for every day's
delay beyond the completion date specified in the contract. The stipulated sum of $100 per day is
Both parties should
consider including a reasonable and commensurate with the anticipated loss. Therefore, it is enforceable as liquidated
contractual provision for damages. If, instead, the sum stipulated had been $5,000 per day, it would be unreasonably large
reasonable liquidated and, therefore, would be void as a penalty.
damages, especially where Article 2A authorizes liquidated damages payable by either party for default, or any other act
damages would be difficult
or omission. The amount of, or formula for, liquidated damages must be reasonable in light of the
to prove.
then -anticipated harm caused by default or other act or omission.
Coastal Leasing Corporation v. T-Bar S Corporation

Court of Appeals of North Carolina, 1998
128 N.C.App. 379, 496 S.E.2d 795
FACTS T he plaintiff, Coastal Leasing Corporation (Coastal ), T-Bar failed to answer, a default judgment was entered against it.
entered into a lease agreement with the defendant, T-Bar S Cor After a hearing, the trial court entered summary judgment in favor
poration (T-Bar), in May 1992, whereby Coastal agreed to lease of Coastal on its complaint and the Talbotts' counterclaims and
certain cash register equipment to T-Bar. Under the lease, T-Bar entered judgment against the Talbotts for the sum of$7,223.56 plus
agreed to monthly rental payments of$289.13 each for a total of interest and attorneys' fees of $1,083.54. The Talbotts appealed.
forty-eight months. Defendants George and Sharon Talbott were
DECISION Judgment affirmed.
the officers of T-Bar and personally guaranteed payment. After
making eighteen of the monthly payments, the Talbotts and T-Bar OPINION Since both parties agree that the transaction in this
defaulted on the lease. On February 28, 1994, Coastal mailed a cer case is a lease, not a security interest, Article 2A controls. (Article 9
tified letter to the Talbotts and T-Bar advising them that the lease controls security interests and is discussed in Chapter 37.) Article
was in default and, pursuant to the terms of the lease, Coastal was 2A states, in pertinent part:
accelerating the remaining payments due under the lease. Coastal
Damages payable by either party for default, or any other
further advised the Talbotts and T-Bar that if the entire amount
act or omission ... may be liquidated in the lease agree
due of$8,841.06 was not received within seven days, Coastal would
ment but only at an amount or by a formula that is rea
seek to recover the balance due plus interest and reasonable attor
sonable in light of the then-anticipated harm caused by the
neys' fees, as well as possession of the equipment.
default or other act or omission.
On March 10, Coastal mailed a certified letter and "Notice of
Public Sale of Repossessed Leased Equipment" to the Talbotts and This liquidated damages provision is more flexible than that
T-Bar at the same address. This letter advised the Talbotts and provided by its statutory analogue under Article 2. T he drafters
T-Bar that Coastal had taken possession of the equipment and of Article 2A chose not to incorporate Article 2's requirements of
was conducting a public sale pursuant to the terms of the lease. difficulty of proof and inconvenience or infeasibility of other wise
Although the date on the notice of sale stated that the sale was to obtaining an adequate remedy. Moreover, the fact that there is a
be held on March 23, the sale was actually scheduled to be held on difference between the actual loss, as determined at or about the
March 2 5. This letter and notice of sale were returned to Coastal time of the default, and the anticipated loss or stipulated amount
"unclaimed" on March 29. or formula, as stipulated at the time the lease contract was entered
Coastal conducted a public sale of the equipment on March into, does not necessarily mean that the liquidated damage agree
2 5, and no one appeared on behalf of the Talbotts or T-Bar. There ment is unreasonable. The basic test of the reasonableness of an
being no other bidders, Coastal purchased the equipment at the agreement liquidating damages is whether the stipulated amount
sale for $2,000. On October 4, 1994, Coastal leased some of the or amount produced by the stipulated formula represents a reason
same equipment to another company at a rate calculated to be able forecast of the probable loss. In this case, Paragraph 13 of the
$212.67 for thirty-six months. Coastal then filed this action seek lease (the liquidated damages clause) reads in part as follows:
ing to recover the balance due under the lease, minus the net pro
ceeds from the public sale, plus interest and reasonable attorneys' 13. REMEDIES. If an event of default shall occur, Les
fees. The Talbotts filed an answer and counterclaim. Coastal then sor may, at its option, at any time (a) declare the entire
filed a motion for summary judgment against the Talbotts. When amount of unpaid rental for the balance of the term of
this lease immediately due and payable, whereupon Les evidence that Coastal exercised a superior bargaining position in
see shall become obligated to pay to Lessor forthwith the the negotiation of the liquidated damages clause, no genuine issue
total amount of the said rental for the balance of the said of material fact exists as to its reasonableness, and the trial court
term, and (b). without demand or legal process, enter into did not err by enforcing its provisions.
the premises where the equipment may be found and take
INTERPRETATION Article 2A, which governs leases, allows
possession of and remove the Equipment.
the parties to liquidate damages as long as the negotiated amount is
The liquidated damages clause is a reasonable estimation of the reasonable in light of the anticipated loss.
then-anticipated damages in the event of default because it protects CRITICAL THINKING QUESTION Do you agree with the
Coastal's expectation interest. The liquidated damages clause places
decision by the drafters of Article 2A to omit Article 2's require
Coastal in the position it would have occupied had the lease been
ments of difficulty of proof and inconvenience or infeasibility of
fully performed by allowing it to accelerate the balance of the lease
otherwise obtaining an adequate remedy? Explain.
payments and repossess the equipment. Therefore, since there is no
Modification or limitation Modification or Limitation of Remedy by Agreement [23-3b]

of remedy by agreement The contract between the seller and buyer may expressly provide for remedies in addition to or
the contract between the instead of those provided in the Code and may limit or change the measure of damages recover
parties may expressly provide able in the event of breach. (Article 2A.) For instance, the contract may validly limit the buyer's
for remedies in addition to remedy to a return of the goods and a refund of the price or to the replacement of nonconforming
those in the Code, or it may goods or parts.
limit or change the measure A contractual remedy is optional, however, unless the parties expressly agree that it is to be
of damages recoverable for exclusive of other remedies, in which event it becomes the sole remedy. (Article 2A.) Moreover,
breach when circumstances cause an exclusive or limited remedy to fail in its essential purpose, the par
ties may resort to the remedies provided by the Code. (Article 2A.)
PracticalAdvice The contract may expressly limit or exclude consequential damages unless such limitation
or exclusion would be unconscionable. Limitation of consequential damages for personal injuries
If you are the seller,
consider including a resulting from breach of warranty in the sale of consumer goods is prima facie unconscionable,
contractual provision for whereas limitation of such damages for commercial loss is not. (Article 2A.) For example, Ace
the limitation or exclusion Motors, Inc., sells a pickup truck to Brenda, a consumer. The contract of sale excludes liability for
of consequential damages. all consequential damages. The next day, the truck explodes, causing serious personal injury to
If you are the buyer, avoid Brenda. Brenda would recover for her personal injuries unless Ace could prove that the exclusion
such limitations.
of consequential damages was not unconscionable.
Midwest Hatchery v. Doorenbos Poultry

Court of Appeals of Iowa, 2010 --
• 783 N.W.2d 56
FACTS Doorenbos Poultry, Inc., is a company that keeps approxi By mutual agreement, delivery was delayed until January 16, 17,
mately 150,000 chickens for egg production and sells the eggs. Hens and 18, 2007, when Midwest delivered 115,581 pullets to Dooren
generally do not begin laying eggs until they are seventeen or eigh bos Poultry. As the new chicks arrived, the old pullets were moved
teen weeks old, reach their peak production at approximately twen out. Scott Doorenbos, the president of Doorenbos Poultry, thought
ty-six weeks, and usually continue producing eggs until they are the new chickens looked small and, based on their weight, con
about 110 weeks old. The practice of Doorenbos Poultry has been cluded the birds delivered were thirteen to fourteen weeks of age
to keep all chickens of a single age group through their productive rather than eighteen weeks. Doorenbos could not cancel the order
life and then simultaneously replace those birds with new chickens and return the chickens because his former flock had already been
that are seventeen to eighteen weeks old. This practice maximizes removed. The barns in which the chickens are kept do not have
production and continues some cash f low without interruption. heating, and the buildings maintain their temperature from the
Midwest Hatchery & Poultry Farms, Inc., is a producer and body heat of the birds. Therefore, if Doorenbos had not kept the
seller of poultry products. In the fall of 2006, Doorenbos Poultry pullets, the water lines in the barn would have frozen.
entered into a written contract with Midwest to purchase 112,000 The pullets delivered by Midwest did not start laying eggs
pullets (young hens), at eighteen weeks of age, to be delivered on until February 18, 2007. From the time the pullets were delivered
December 28, 2006. The contract listed a price of $1.27 per pullet, until the pullets reached their "laying" phase, Doorenbos Poultry
plus the cost offeed from the time of hatching to the date of deliv incurred feeding and other maintenance costs for the pullets with
ery. The contract also provided, "If Seller breaches this Contract, at no egg production to generate revenue. On January 20, 2007, Mid
Seller's option, customer is entitled to either replacement or refund west sent Doorenbos Poultry an invoice for $267,916.76, which
of the price paid by Customer:' represented $146,787.87 for the cost of 115,581 pullets, $112,460.31
424 PART IV Sales
for feed, and $8,668.58 for vaccine. Doorenbos Poultry did not pay The Code provides "Where circumstances cause an exclusive or
for the birds Midwest delivered. Within thirty days after the pul limited remedy to fail of its essential purpose, remedy may be had
lets had been delivered, Doorenbos Poultry complained to Mid as provided in this chapter:' A remedy's essential purpose "is to give
west that it had not received chickens that were eighteen weeks to a buyer what the seller promised him." The focus of analysis "is
old, as specified in the contract, sought a reduction in the contract not whether the remedy compensates for all damage that occurred,
price, and stated it lost income while the chickens were not mature but that the buyer is provided with the product as seller promised:'
enough to lay eggs. Doorenbos Poultry did not seek to have any Where repair or replacement can give the buyer what is bargained
of the pullets replaced. On August 19, 2007, Doorenbos Poultry for, a limitation of remedies does not fail of its essential purpose. Here,
sent Midwest a check for $184,135.18, which was what it believed the limited remedy provision of the parties' contract failed of its essen
should have been the cost for the younger pullets. Doorenbos Poul tial purpose. Doorenbos Poultry notified Midwest that the pullets
try never returned any chickens to Midwest. were not as specified in the contract within thirty days after delivery.
On September 14, 2007, Midwest filed an action for a money The reference to a replacement or refund in the contract contemplates
judgment alleging breach of contract. Doorenbos Poultry the entire sale with Midwest taking back the entire flock of birds.
responded with a counterclaim alleging breach of contract by At the time Scott Doorenbos informed Midwest that the pul
Midwest. In a decision filed January 9, 2009, the district court lets delivered were not eighteen weeks old, it is clear that Dooren
concluded that about 80 percent of the pullets were three weeks bos Poultry was not interested in having the pullets replaced, and
too young and about 20 percent were four weeks too young. The Midwest made no offer to replace them. When it was notified of
district court determined that (1) this action was governed by the the breach, Midwest could have exercised its option under the con
Uniform Commercial Code (UCC); (2) because Doorenbos had tract, taken back the entire flock, and either replaced the chickens
accepted and kept the pullets, Midwest is entitled to the unpaid with eighteen-week-old pullets or refunded the entire purchase
balance of the contract price; and (3) Doorenbos Poultry was lia price. The record supports the conclusion that this did not happen
ble for the full amount billed by Midwest Hatchery, meaning it still because it was plainly impractical.
owed $83,781.58 for the pullets that had been delivered. The court It would have been extremely inefficient for both parties to
also concluded that (1) Doorenbos Poultry's acceptance of the replace the pullets Midwest had delivered. As Scott Doorenbos tes
pullets did not preclude its breach of contract claim against Mid tified, a simultaneous exchange would have been necessary because
west; (2) Midwest had breached the contract by providing pullets the birds provided the only source of heat for the barn. In addition,
that were not of the specified age; (3) the limitation of damages it does not appear that either party was interested in the option of
clause in the parties' contract failed in its essential purpose; and removal and refund.
(4) Doorenbos Poultry had lost profits of $31,732.79. The court set Under the circumstance presented here, the district court did
off the amount of the loss against the balance Doorenbos Poultry not err in concluding the limitation of remedies provision in the
still owed Midwest and entered judgment against Doorenbos parties' contract failed in its essential purpose.
Poultry for $52,048.79 ($83,781.58 minus $31,732.79). Amount of Damages Because the limitation of remedies provision
DECISION The decision of the district court is affirmed. failed in its essential purpose, a consideration of damages reverts to
the Code's provision for the recovery of damages for "the loss result
OPINION Doorenbos Poultry appealed from the decision of the ing in the ordinary course of events from the seller's breach as deter
district court. mined in any manner which is reasonable:' Thus, any manner that is
Breach of Contract Under the UCC, if a buyer accepts goods, reasonable may be used to determine a buyer's damages for noncon
despite their nonconformity to the specifications of the contract, forming goods. Here, the district court found a loss of profits would
the buyer must pay the contract rate for the goods accepted. There have been an expected loss resulting in the ordinary course of events
is substantial evidence in the record to support the finding of the from the nonconformity of the pullets delivered by Midwest.
district court that Doorenbos Poultry accepted the chickens deliv Damages are measured by the difference between the value of
ered by Midwest, despite their nonconformity. the goods at the time of acceptance, and their value if they had
Limitation of Remedies Provision The acceptance of the non been as specified in the contract, unless special circumstan ces
conforming goods by Doorenbos Poultry did not preclude its show proximate damages of a different amount. The district court
counterclaim for breach of contract against Midwest. Doorenbos noted that neither party submitted any evidence as to the value of
Poultry may recover as damages for any nonconformity of tender fourteen- or fifteen-week-old pullets and expressed skepticism that
the loss resulting in the ordinary course of events from the seller's there would be any recognized value for pullets that were between
breach as determined in any manner that is reasonable. fourteen and fifteen weeks old and did not have the ability to lay
Under the UCC, the parties to a contract may agree to limit the eggs. As a result, the district court concluded the "special circum
remedies available if the seller breaches the contract by providing stances" provision should apply.
nonconforming goods, as follows: After carefully considering the evidence presented, the district
court calculated $31,732.79 as the damages to be awarded Doorenbos
[T]he agreement may provide for remedies in addition to Poultry on its counterclaim. The appellate court affirmed th is
or in substitution for those provided in this Article and calculation.
may limit or alter the measure of damages recoverable
under this Article, as by limiting the buyer's remedies to INTERPRETATION In cases in which circumstances cause an
return of the goods and repayment of the price or to repair exclusive or limited remedy to fail of its essential purpose, the gen
and replacement of nonconforming goods or parts. eral remedy provisions of the Code apply.
In this case, the parties' contract specifically provided, "If Seller CRITIC AL THINKING QUESTION Do you agree with the
breaches this Contract, at Seller's option, customer is entitled to Code's policy permitting the parties to establish an exclusive rem
either replacement or refund of the price paid by Customer:' edy in place of the Code's remedies?
Remedies of Buyer's Default the seller's remedies are triggered by the buyer's action in wrongfully rejecting or revok
ing acceptance of the goods, in failing to make payment due on or before delivery, or in repudiating the
contract
Withhold Delivery of the Goods
Stop Delivery of the Goods if the buyer is insolvent (one who is unable to pay his debts as they become
due or one whose total liabilities exceed his total assets), the seller may stop any delivery; if the buyer
repudiates or otherwise breaches, the seller may stop carload, truckload, planeload, or larger shipments
Identify Goods
Resell the Goods and Recover Damages the seller may resell the goods concerned or the undelivered
balance of the goods and recover the difference between the contract price and the resale price, together
with any incidental damages, minus expenses saved
• Type of Resale may be public or private
• Manner of Resale must be made in good faith and in a commercially reasonable manner
Recover Damages for Nonacceptance or Repudiation
• Market Price Differential the seller may recover damages from the buyer measured by the difference
between the unpaid contract price and the market price at the time and place of tender of the goods,
plus incidental damages, minus expenses saved
• Lost Profit in the alternative, the seller may recover the lost profit, including reasonable overhead, plus
incidental damages, minus expenses saved
Recover the Price the seller may recover the price
• when the buyer has accepted the goods
• when the goods have been lost or damaged after the risk of loss has passed to the buyer
• when the goods have been identified to the contract and there is no ready market available for their
resale
Recover Incidental Damages incidental damages include any commercially reasonable charges,
expenses, or commissions directly resulting from the breach
Cancel the Contract
Reclaim the Goods upon the Buyer's Insolvency an unpaid seller may reclaim goods from an insol
vent buyer under certain circumstances
Remedies of the Seller's Default the buyer's remedies arise when (1) the seller fails to make delivery or repudiates the con-
Buyer tract or (2) the buyer rightfully rejects or justifiably revokes acceptance of goods tendered or delivered
Cancel the Contract
Recover Payments Made
Cover the buyer may obtain cover by proceeding in good faith and without unreasonable delay to purchase
substitute goods; the buyer may recover the difference between the cost of cover and the contract price,
plus any incidental and consequential damages, minus expenses saved
Recover Damages for Nondelivery or Repudiation the buyer may recover the difference between the
market price at the time the buyer learned of the breach and the contract price, plus any incidental and
consequential damages, but minus expenses saved
Recover Identified Goods on the Seller's Insolvency for which he has paid all or part of the price
Sue for Replevin the buyer may recover goods identified to the contract if (1) the buyer is unable to obtain
cover or (2) the goods have been shipped under reservation of a security interest in the seller
Sue for Specific Performance the buyer may obtain specific performance when the goods are unique or
in other proper circumstances
Enforce a Security Interest in the Goods a buyer who has rightfully rejected or justifiably revoked
acceptance of goods that remain in her possession has a security interest in these goods for any payments
made on their price and for any expenses reasonably incurred
Recover Damages for Breach in Regard to Accepted Goods the buyer may recover damages result
ing in the ordinary course of events from the seller's breach; in the case of breach of warranty, such recov
ery is the difference between the value the goods would have had if they had been as warranted and the
value of the nonconforming goods that have been accepted
426 PART IV Sales
Recover Incidental Damag es the buyer may recover incidental damages, which include any commer
cially reasonable expenses connected with the delay or other breach
Recover Conseq uential Damages the buyer may recover consequential damages resulting from the
seller's breach, including (1) any loss resulting from the buyer's requirements and needs of which the
seller at the time of contracting had reason to know and which the buyer could not reasonably prevent
by cover or otherwise and (2) injury to person or property proximately resulting from any breach of
warranty
Contractual Liquidation or Limitation of Damages the parties may specify the amount or measure of damages that
Provisions Affecting may be recovered in the event of a breach if the amount is reasonable
Remedies Modification or Limitation of Remedy by Agreement the contract between the parties may expressly
provide for remedies in addition to those in the Code, or it may limit or change the measure of damages
recoverable for breach
1. Mae contracted to sell one thousand bushels of wheat to Lloyd The Forte Piano Company sued Betty to recover the contract
at $10.00 per bushel. Just before Mae was to deliver the wheat, price. To what remedy, if any, is Forte entitled? Explain.
Lloyd notified her that he would not receive or accept the 4. Sims contracted in writing to sell Blake one hundred electric
wheat. Mae sold the wheat for $9.60 per bushel, the market motors at a price of $100 each, freight prepaid to Blake's ware
price, and later sued Lloyd for the difference of $400. Lloyd house. By the contract of sale, Sims expressly warranted that
claims he was not notified by Mae of the resale and hence is not each motor would develop twenty-five brake horsepower. The
liable. Is Lloyd correct? Why or why not? contract provided that the motors would be delivered in lots
2. On December 15, Judy wrote a letter to David stating that she of twenty-five per week beginning January 2 and that Blake
would sell to David all of the mine-run coal that David might should pay for each lot of twenty-five motors as delivered, but
need to buy during the next calendar year for use at David's fac that Blake was to have right of inspection on delivery. Immedi
tory, delivered at the factory at a price of $50.00 per ton. David ately on delivery of the first lot of twenty-five motors on Janu
immediately replied by letter to Judy stating that he accepted ary 2, Blake forwarded Sims a check for $2,500, but on testing
the offer, that he would purchase all of his mine-run coal from each of the twenty-five motors, Blake determined that none of
Judy, and that he would need two hundred tons of coal during them would develop more than fifteen brake horsepower. State
the first week in January. During the months of January, Feb all of the remedies under the Uniform Commercial Code avail
ruary, and March, Judy delivered to David a total of seven hun able to Blake.
dred tons of coal, for which David made payment to Judy at the 5. Henry and Mary entered into a written contract whereby
rate of $50.00 per ton. On April 10, David ordered two hun Henry agreed to sell and Mary agreed to buy a certain auto
dred tons of mine-run coal from Judy, who replied to David on mobile for $8,500. Henry drove the car to Mary's residence and
April 11 that she could not supply David with any more coal properly parked it on the street in front of Mary's house, where
except at a price of $58.00 per ton delivered. David thereafter he tendered it to Mary and requested payment of the price.
purchased elsewhere at the market price, namely $58.00 per Mary refused to take the car or pay the price. Henry informed
ton, all of his factory's requirements of mine-run coal for the Mary that he would hold her to the contract, but before Henry
remainder of the year, amounting to a total of two thousand had time to enter the car and drive it away, a fire truck, answer
tons of coal. Can David now recover damages from Judy at the ing a fire alarm and traveling at a high speed, crashed into the
rate of $8.00 per ton for the coal thus purchased, amounting to car and demolished it. Henry brings an action against Mary
$16,000? Why or why not? to recover the price of the car. Who is entitled to judgment?
Would there be any difference in result if Henry were a dealer
3. On January 10, Betty, of Emanon, Missouri, visited the show
in automobiles? Explain.
rooms of the Forte Piano Company in St. Louis and selected a
piano. A sales memorandum of the transaction signed by Betty 6. Jane sells and delivers to Gerald on June 1 certain goods and
and the salesman of the Forte Piano Company read as follows: receives from Gerald at the time of delivery Gerald's check in
"Sold to Betty one new Andover piano, factory number 46832, the amount of $9,000 for the goods. The following day, Gerald
price $3,300, to be shipped to the buyer at Emanon, Missouri, is petitioned into bankruptcy; and Gerald's bank dishonors the
freight prepaid, before February 1. Prior to shipment, seller will check. On June 5, Jane serves notice on Gerald and the trustee
stain the case a darker color in accordance with buyer's direc in bankruptcy that she reclaims the goods. The trustee is in
tions and will make the tone more brilliant." On January 15, possession of the goods and refuses to deliver them to Jane.
Betty repudiated the contract by letter to the Forte Piano Com What are the rights of the parties?
pany. The company subsequently stained the case, made the 7. The ABC Company, located in Chicago, contracted to sell a
tone more brilliant, and offered to ship the piano to Betty on carload of television sets to Dodd in St. Louis, Missouri, on
January 26. Betty persisted in her refusal to accept the piano. sixty days' credit. ABC Company shipped the carload to Dodd.
On arrival of the car at St. Loui_s, Dodd paid the freight charges 9. Calvin purchased a log home construction kit, manufactured
and reshipped the car to Hines of Little Rock, Arkansas, to by Boone Homes, Inc., from an authorized Boone dealer.
whom he had previously contracted to sell the television sets. T he sales contract stated that Boone would repair or replace
While the car was in transit to Little Rock, Dodd went bank defective materials and that this was the exclusive remedy
rupt. A BC Company was informed of this at once and immedi available against Boone. T he dealer assembled the house,
ately telephoned XYZ Railroad Company to withhold delivery which was defective in a number of respects. T he knotholes
of the television sets. Explain what the XYZ Railroad Company in the logs caused the walls and ceiling to leak. A support
should do. beam was too small and therefore cracked, causing the floor
8. Robert in Chicago entered into a contract to sell certain to crack also. These defects could not be completely cured by
machines to Terry in New York. The machines were to be man repair. Should Calvin prevail in a lawsuit against Boone for
ufactured by Robert and shipped F.O.B. Chicago not later than breach of warranty to recover damages for the loss in value?
March 25. On March 24, when Robert was about to ship the Explain.
machines, he received a letter from Terry wrongfully repudiating 10. Margaret contracted to buy a particular model Rolls-Royce
the contract. The machines cannot readily be resold for a rea from Paragon Motors, Inc. Only one hundred of these mod
sonable price because they are a special kind used only in Ter els are built each year. She paid a $30,000 deposit on the car,
ry's manufacturing processes. Robert sues Terry to recover the but Paragon sold the car to Gluck. What remedy, if any, does
agreed price of the machines. What are the rights of the parties? Margaret have against Paragon?
11. Technical Textile agreed by written contract to manufacture the market to fulfill commitments to his purchasers. To what
and sell 20,000 pounds of yarn to Jagger Brothers at a price of damages, if any, is the grain dealer entitled? Explain.
$2.15 per pound. After Technical had manufactured, delivered, 14. T hrough information provided by S-2 Yachts, Inc., the plaintiff,
and been paid for 3,723 pounds of yarn, Jagger Brothers by let Barr, located a yacht to his liking at the Crow's Nest marina and
ter informed Technical that it was repudiating the contract and yacht sales company. When Barr asked the price, he was told
that it would refuse any further yarn deliveries. On August 12, that, although the yacht normally sold for $102,000, Crow's
the date of the letter, the market price of yarn was $1.90 per Nest was willing to sell this particular one for only $80,000
pound. T he remaining 16,277 pounds were never manufac to make room for a new model from the manufacturer, S-2
tured. Technical sued Jagger Brothers for breach of contract. To Yachts, Inc. Barr was assured that the yacht in question came
what damages, if any, is Technical entitled? Explain. with full manufacturer's warranties. Barr asked if the yacht was
12. Sherman Burrus, a job printer, purchased a printing press from new and if anything was wrong with it. Crow's Nest told him
the Itek Corporation for a price of $7,006.08. Before making that nothing was wrong with the yacht and that there were only
the purchase, Burrus was assured by an Itek salesperson, Mr. twenty hours of use on the engines.
Nessel, that the press was appropriate for the type of printing Once the yacht had been delivered and Barr had taken it for
Burrus was doing. Burrus encountered problems in operat a test run, he noticed several problems associated with saltwa
ing the press almost continuously from the time he received ter damage, such as rusted screws, a rusted stove, and faulty
it. Burrus, his employees, and Itek representatives spent many electrical wiring. Barr was assured that Crow's Nest would pay
hours in an unsuccessful attempt to get the press to operate for these repairs. However, as was later discovered, the yacht
properly. Burrus requested that the press be replaced, but Itek was in such a damaged condition that Barr experienced great
refused. Burrus then brought an action against Itek for (a) personal hazard the two times that he used the boat. Exam
damages for breach of the implied warranty of merchantabil ination by a marine expert revealed clearly that the boat had
ity and (b) consequential damages for losses resulting from the been sunk in salt water prior to Barr's purchase. T he engines
press's defective operation. Burrus was able to prove that the were severely damaged, and there was significant structural
actual value of the press was $1,167 and, because of the defec and equipment damage as well. According to the expert, not
tive press, that his output decreased and he sustained a great only was the yacht not new, it was worth at most only a half of
loss of paper. Itek contends that consequential damages are not the new value of $102,000. What should Barr be able to recover
recoverable in this case since Burrus elected to keep the press from S-2 Yachts and Crow's Nest?
and continued to use it. How much should Burrus recover in 15. Lee Oldsmobile sells Rolls-Royce automobiles. Mrs. Kaiden
damages for breach of warranty? Is he entitled to consequential sent Lee a $25,000 deposit on a used Rolls-Royce with a pur
damages? Why or why not? chase price of $155,500. Although Lee informed Mrs. Kaiden
13. A farmer made a contract in April to sell a grain dealer forty that the car would be delivered in November, the order form
thousand bushels of corn to be delivered in October. On June did not indicate the delivery date and contained a disclaimer
3, the farmer unequivocally informed the grain dealer that for delay or failure to deliver due to circumstances beyond
he was not going to plant any corn, that he would not fulfill the the dealer's control. On November 21, Mrs. Kaiden purchased
contract, and that if the buyer had commitments to resell another car from another dealer and canceled her car from Lee.
the corn he should make other arrangements. T he grain dealer When Lee attempted to deliver a Rolls-Royce to Mrs. Kaiden
waited in vain until October for performance of the repudiated on November 29, Mrs. Kaiden refused to accept delivery. Lee
contract. T hen he bought corn at a greatly increased price on later sold the car for $150,495. Mrs. Kaiden sued Lee for her
428 PART IV Sales
$25,000 deposit plus interest. Lee counterclaims, based on the equipment. In the "New Equipment Warranty;' John Deere
terms of the contract, for liquidated damages of $25,000 (the expressly provided the following: (a) John Deere's promise
amount of the deposit) as a result of Mrs. Kaiden's breach of to repair or replace parts that were defective in material or
contract. What are the rights of the parties? workmanship; (b) a disclaimer of any express warranties or
16. Servebest contracted to sell Emessee two hundred thousand implied warranties of merchantability or fitness for a particu
pounds of 50 percent lean beef trimmings for $105,000. Upon lar purpose; (c) an exclusion of all incidental or consequential
a substantial fall in the market price, Emessee refus�d to pay damages; and (d) no authority for the dealer to make any rep
the contract price and informed Servebest that the contract resentations, promises, modifications, or limitations of John
was canceled. Servebest sues Emessee for breach of contract, Deere's written warranty. Hoping to sell more equipment if the
including (a) damages for the difference between the contract Bishop Logging system was successful, however, John Deere
price and the resale price of the trimmings and (b) incidental agreed to assume part of the risk of the new enterprise by
damages. Discuss. extending its standard equipment warranties notwithstanding
the unusual use and modifications to the equipment.
17. Mrs. French was the highest bidder on eight antique guns at Soon after being placed in operation in the swamp, the
an auction held by Sotheby & Company. Mrs. French made machinery began to experience numerous mechanical prob
a down payment on the guns but subsequently refused to lems. John Deere made more than $110,000 in warranty repairs
accept the guns and refused to pay the remaining balance of on the equipment. However, Bishop Logging contended the
$24,886.27 owed on them. Is Sotheby's entitled to collect the swamp logging system failed to operate as represented by John
price of the guns from Mrs. French? Why or why not? Deere, and as a result, it suffered a substantial financial loss. To
18. Teledyne Industries, Inc., entered into a contract with Tera what remedies, if any, is Bishop entitled? Explain.
dyne, Inc., to purchase a T-347A transistor test system for the 21. The plaintiff contracted with the defendant to deliver liquid
list and fair market price of $98,400 less a discount of $984. nitrogen to the defendant's oil refinery production facility
After the system was packed for shipment, Teledyne canceled
located in Belle Chasse, Louisiana. The defendant uses liquid
the order, offering to purchase a Field Effects Transistor System nitrogen to ensure the safe operation of its plant. The con
for $65,000. Teradyne refused the offer and sold the T-347 A to tract was a "requirements" contract-deliveries were based on
another purchaser pursuant to an order that was on hand prior how much liquid nitrogen the defendant had in its tanks. As a
to the cancellation. Can Teradyne recover from Teledyne for
result, the plaintiff typically made deliveries seven days a week
lost profits resulting from the breach of contract? Explain.
and sometimes several times a day.
19. Wilson Trading Corp. agreed to sell David Ferguson a specified The defendant claims that the plaintiff repeatedly failed to
quantity of yarn for use in making sweaters. The written con deliver the liquid nitrogen on time, thereby dropping the liq
tract provided that notice of defects, to be effective, had to be uid nitrogen to dangerously low levels and compromising the
received by Wilson before knitting or within ten days of receipt safety of the plant and its personnel. The contract provided
of the yarn. When the knitted sweaters were washed, the color that if the plaintiff failed to deliver the liquid nitrogen as
of the yarn "shaded" (i.e., variations in color from piece to required, the defendant's sole remedy would be to purchase the
piece appeared). David Ferguson immediately notified Wilson product from another supplier and charge the plaintiff for the
of the problem and refused to pay for the yarn, claiming that additional expenses incurred. The defendant did not exercise
the defect made the sweaters unmarketable. Wilson brought this right because it claims it was unable to purchase nitrogen
suit against Ferguson for the contract price. What result? from other suppliers. However, on the only occasion the defen
20. Bishop Logging Company is a large, family-owned logging dant actually tried to purchase nitrogen from another supplier,
contractor formed in the Lowcountry of South Carolina. it was successful. The plaintiff sued the defendant for breach
Bishop Logging has traditionally harvested pine timber. How of contract, and the defendant counterclaimed. What are the
ever, Bishop Logging began investigating the feasibility of a rights and remedies of the parties? Explain.
fully mechanized hardwood swamp logging operation when 22. Appalachian is a coal hauling company in southern West Vir
its main customer, Stone Container Corporation, decided to ginia. Appalachian purchased four new Mack trucks for off
expand hardwood production. In anticipating an increased road coal hauling. Appalachian purchased three of the trucks
demand for hardwood in conjunction with the operation of for $165,000 each and the fourth for $175,000. The trucks were
a new paper machine, Stone Container requested that Bishop sold to Appalachian by Worldwide, a franchised retail dealer
Logging harvest and supply hardwood for processing at its for Mack. The express warranty made with regard to Appala
mill. In South Carolina, most suitable hardwood is located chian's purchase of the four trucks validly disclaimed implied
deep in the swamplands. Because of the high accident risk in warranties and limited the express warranty to repairing or
the swamp, Bishop Logging did not want to harvest hardwood replacing defective parts. According to Appalachian, each of
by the conventional method of manual felling of trees. Because the four trucks failed to function properly due to a multitude
Bishop Logging had already been successful in its totally mech of problems, which began immediately after the purchase. The
anized pine logging operation, it began a search for improved trucks continually broke down, resulting in repeated instances
methods of hardwood swamp logging centered on mechaniz of driving or towing the trucks back for repairs. The problems
ing the process to reduce labor, minimize personal injury and included not running, hard starting, transmission problems,
insurance costs, and improve efficiency and productivity. overheating, leaking water pumps, hoods falling off, and cabs
Bishop Logging ultimately purchased several pieces of John falling apart. Although Worldwide never declined to try to
Deere equipment to make up the system. The gross sales price repair the trucks, the repairs were never successful and replace
of the machinery was $608,899. All the equipment came with a ment vehicles were never provided. Appalachian brought an
written John Deere "New Equipment Warranty;' whereby John action for revocation of acceptance of the four trucks, a refund
Deere agreed only to repair or replace the equipment during of the purchase price, incidental damages, and consequential
the warranty period and did not warrant the suitability of the damages. Decision? Explain.
paniel Martin and John Duke contracted with J & S Distributors, When the machine arrived five days late, Martin and Duke
Jnc., to purchase a KIS Magnum Speed printer for $17,000. The refused to accept it, stating that the company had purchased a
parties agreed that Martin and Duke would send one-half of the substitute machine elsewhere. Martin and Duke requested the
rno ney as a deposit and would pay the balance upon delivery. They return of its deposit, but J & S refused. Martin and Duke sued
also agreed to the following provision: J & S for the return of its deposit. J & S counterclaimed for full
performance of the contract, seeking an order that Martin and
In th e event of nonpayment of the balance of the purchase Duke accept delivery of the KIS machine and pay the entire bal
price reflected herein on due date and in the manner
ance of the contract.
recorded or on such extended date which may be caused
by late delivery on the part of [ the seller], the Customer a. What arguments would support the claim by Martin and
shall be liable for (1) immediate payment of the full balance Duke for the return of the deposit?
recorded herein; and (2) payment of interest at the rate of b. What arguments would support the claim by J & S for full
12 percent per annum calculated on the balance due, when due, performance of the contract?
together with any attorney's fees, collection charges, and other c. Who should prevail? Explain.
necessary expenses incurred by [ the seller].

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Sales Remedies

REMEDIES OF THE SELLER [23-1]

Withhold Delivery of the Goods [23-1 a]

Stop Delivery of the Goods [23-1 b]

Resell the Goods and Recover Damages [23-1 d]

Recover Damages for Nonacceptance or Repudiation [23-1 e]

Kenco Homes, Inc. v. Williams

Recover the Price [23-1 f]

Recover Incidental Damages [23-1 g]

PracticalAdvice Cancel the Contract [23-1 h]

CONCEPT REVIEW 23-1

Remedies ofthe Seller

Buyer's Breach Obligation Oriented Goods Oriented' Money Oriented2

REMEDIES OF THE BUYER [23-2]

Cancel the Contract [23-2a]

Recover Payments Made [23-2b]

j, Bigelow-Sanford, Inc. v. Gunny Corp.

Sue for Replevin [23-2f]

Enforce a security interest Enforce a Security Interest in the Goods [23-2h]

Recover Incidental Damages [23-2j]

Recover Consequential Damages [23-2k]

CONCEPT REVIEW 23-2

Remedies ofthe Buyer

Buyer Rightfully Cancel • Have a security interest Recover payments made

Buyer Justifiably Cancel • Have a security interest Recover payments made

Buyer Accepts Recover damages for breach of

CONTRACTUAL PROVISIONS AFFECTING

Liquidation or limitation Liquidation or Limitation of Damages [23-3a]

Coastal Leasing Corporation v. T-Bar S Corporation

Modification or limitation Modification or Limitation of Remedy by Agreement [23-3b]

Midwest Hatchery v. Doorenbos Poultry

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