Deck 16: Performance and Breach of Sales and Lease Contracts

Question 1

Country Fruit Stand orders eighty cases of peaches from Down Home Farms. Without stating a reason, Down Home untimely delivers thirty cases instead of eighty. Does Country have the right to reject the shipment? Explain.

Answer 1

, the buyer has the right to reject the shipment.
The perfect tender rule sates that the seller was obligated to eighty cases of peaches within stipulated time according to the terms of the contract. Any failure to conform to the contract may result in complete or partial rejection of the shipment.
Since the seller did not specify the reason for delivering too little too late to take, the buyer has all the rights to reject the shipment.
Moreover, the seller cannot take the advantage of partial performance exception.

Question 2

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What are the respective obligations of the parties under a contract for the sale or lease of goods?

Answer 2

Every contract relies upon the obligations of good faith and commercial reasonableness.
The obligations of the parties- buyer and seller-under a contract for the sale or lease of goods are as below.
Obligations of the Seller or Lessor
The basic obligation of the seller is to transfer and deliver conforming goods to the buyer. He must give any notice that is reasonably necessary to enable the buyer or lessee to accept the delivery.
a) Tender of Delivery: The goods must be delivered at a reasonable hour, in a reasonable manner. Further, the goods must be kept available for a reasonable time.
b) Place of Delivery: The contract or the circumstances may indicate the place of delivery, or parties may agree on a particular destination.
c) Perfect Tender Rule : The perfect tender rule sates that the seller was obligated to deliver the goods within stipulated time according to the terms of the contract. Any failure to conform to the contract may result in complete or partial rejection of the shipment.
Obligations of the Buyer or Lessee
The basic obligation of the buyer is to accept the conforming goods, and make the payment for the same and deliver conforming goods to the buyer. He must give any notice that is reasonably necessary to enable the buyer or lessee to accept the delivery.
a) Payment: The buyer is required to pay for the conforming goods by any means as agreed upon by the parties.
b) Right of Inspection: Before accepting the delivery, the buyer has the right to inspect if the goods are what contracted for. The buyer can reject the delivery if goods are not the same as stated in the contract.
c) Acceptance: Given the reasonable opportunity to inspect, if the buyer fails to reject the goods within reasonable time, the delivery is assumed to be accepted.

Question 3

Remedies.
Genix, Inc., has contracted to sell Larson five hundred washing machines of a certain model at list price. Genix is to ship the goods on or before December 1. Genix produces one thousand washing machines of this model but has not yet prepared Larson's shipment. On November 1, Larson repudiates the contract. Discuss the remedies available to Genix in this situation.

Answer 3

Company L repudiates the contract with Company GI. The delivery was due on December 1, while repudiation occurs on November 1. That is, the machines are in the possession of GI.
GI can pursue following remedies.
a) Cancel the contract: GI can cancel the contract and notify company L about the same. At this point, all the obligations of GI would discharge.
b) Withhold delivery: GI can withhold the delivery of machines and discontinue the performance of their obligations under the contract.
c) Resell or dispose of the goods: GI can resell the goods and can retain the profits so earned. GI may also hold company L responsible for any loss incurred. However, GI must give reasonable notice to company L regarding resale in case of perishable goods.
d) Recover the purchase price or lease payment due: If GI cannot resell the goods, it can sue company L for contract purchase price or lease payment due.
e) Recover damages: GI can recover the damages caused due to breach of the contract. The damages can be the loss of profits including some overhead expenses.

Question 4

GFI, Inc., a Hong Kong company, makes audio decoder chips, one of the essential components used in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that even though the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
1. Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or why not?
2. Does the substitution of carriers for the third shipment constitute a breach of the contract by GFI? Explain.
3. Suppose that the silicon used for the chips becomes unavailable for a period of time and that GFI cannot manufacture enough chips to fulfill the contract but does ship as many as it can to Egan. Under what doctrine might a court release GFI from further performance of the contract?
4. Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not?

Question 5

Brite Images, Inc. (BI), agrees to sell Catalog Corporation (CC) five thousand posters of celebrities, to be delivered on May 1. On April 1, BI repudiates the contract. CC informs BI that it expects delivery. Can CC sue BI without waiting until May 1? Why or why not?

Question 6

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the perfect tender rule? What are some important exceptions to this rule that apply to sales and lease contracts?

Question 7

Hypothetical Question with Sample Answer Cummings ordered two model X Super Fidelity speakers from Jamestown Wholesale Electronics, Inc. Jamestown shipped the speakers via United Parcel Service, C.O.D. (collect on delivery), although Cummings had not requested or agreed to a C.O.D. shipment of the goods. When the speakers were delivered, Cummings refused to accept them because he would not be able to inspect them before payment. Jamestown claimed that it had shipped conforming goods and that Cummings had breached their contract. Had Cummings breached the contract? Explain.
- For a sample answer to Question 16-2, go to Appendix E at the end of this text.

Question 8

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What options are available to the nonbreaching party when the other party to a sales or lease contract repudiates the contract prior to the time for performance?

Question 9

Anticipatory Repudiation. Moore contracted in writing to sell her 2002 Ford Taurus to Hammer for $8,500. Moore agreed to deliver the car on Wednesday, and Hammer promised to pay the $8,500 on the following Friday. On Tuesday, Hammer informed Moore that he would not be buying the car after all. By Friday, Hammer had changed his mind again and tendered $8,500 to Moore. Moore, although she had not sold the car to another party, refused the tender and refused to deliver. Hammer claimed that Moore had breached their contract. Moore contended that Hammer's repudiation released her from her duty to perform under the contract. Who is correct, and why?

Question 10

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What remedies are available to a seller or lessor when the buyer or lessee breaches the contract? What remedies are available to a buyer or lessee if the seller or lessor breaches the contract?

Question 11

Acceptance. In April 2007, Stark, Ltd., applied for credit and opened an account with Quality Distributors, Inc., to obtain snack foods and other items for Stark's convenience stores. For three months, Quality delivered the goods and Stark paid the invoices. In July, Quality was dissolved, and its assets were distributed to J. F. Hughes Co. Hughes continued to deliver the goods to Stark, which continued to pay the invoices until November, when the fi rm began to experience financial difficulties. By January 2008, Stark owed Hughes $54,241.77. Hughes then dealt with Stark only on a collect-on-delivery basis until Stark's stores closed in 2009. Hughes fi led a lawsuit in a state court against Stark and its owner to recover amounts due on unpaid invoices. To successfully plead its case, Hughes had to show that there was a contract between the parties. One question was whether Stark had manifested acceptance of the goods delivered by Hughes. How does a buyer manifest acceptance? Was there an acceptance in this case?

Question 12

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
In contracts subject to the UCC, are parties free to limit the remedies available to the nonbreaching party on a breach of contract? If so, in what ways?

Question 13

Case Problem with Sample Answer Eaton Corp. bought four air-conditioning units from Trane Co., an operating division of American Standard, Inc., in 1998. The contract stated in part, "NEITHER PARTY SHALL BE LIABLE FOR... CONSEQUENTIAL DAMAGES." Trane was responsible for servicing the units. During the last ten days of March 2003, Trane's employees serviced and inspected the units, changed the fi lters and belts, and made a material list for repairs. On April 3, a fi re occurred at Eaton's facility, extensively damaging the units and the facility, although no one was hurt. Alleging that the fi re started in the electric motor of one of the units, and that Trane's faulty servicing of the units caused the fi re, Eaton fi led a suit in a federal district court against Trane. Eaton asserted breach of contract, among other claims, and asked for consequential damages. Trane fi led a motion for summary judgment, based on the limitation-of-remedies clause. What are consequential damages? Can these be limited in some circumstances? Is the clause valid in this case? Explain. [ Eaton Corp. v. Trane Carolina Plains, 350 F.Supp.2d 699 (D.S.C. 2004)]

Question 14

Spotlight on Revocation of Acceptance-Remedies of the Buyer.
L.V.R.V., Inc., sells recreational vehicles (RVs) in Las Vegas, Nevada, as Wheeler's Las Vegas RV. In September 1997, Wheeler's sold a Santara RV made by Coachmen Recreational Vehicle Co. to Arthur and Roswitha Waddell. The Waddells hoped to spend two or three years driving around the country, but almost immediately-and repeatedly- they experienced problems with the RV. Its entry door popped open. Its cooling and heating systems did not work properly. Its batteries did not maintain a charge. Most significantly, its engine overheated when ascending a moderate grade. The Waddells brought it to Wheeler's service department for repairs. Over the next year and a half, the RV spent more than seven months at Wheeler's. In March 1999, the Waddells filed a complaint in a Nevada state court against the dealer to revoke their acceptance of the RV. What are the requirements for a buyer's revocation of acceptance? Were the requirements met in this case? In whose favor should the court rule? Why? [Waddell v. L.V.R.V., Inc., 122 Nev. 15, 125 P.3d 1160 (2006)]

Question 15

Obligations of the Seller. Flint Hills Resources, LP, a crude oil refi ner, agreed to buy "approximately 1,000 barrels per day" of Mexican natural gas condensate from JAG Energy Inc., an oil broker. Four months into the contract, Pemex, the only authorized seller of freshly extracted Mexican condensate, warned Flint Hills that some companies might be selling stolen Mexican condensate. Fearing potential criminal liability, Flint Hills refused to accept more deliveries from JAG without proof of the title to its product. JAG promised to forward documents showing its chain of title. When, after several weeks, JAG did not produce the documents, Flint Hills canceled their agreement. JAG fi led a suit in a federal district court against Flint Hills, alleging breach. Did Flint Hills have a right to demand assurance of JAG's title to its product? If so, did the buyer act reasonably in exercising that right? Explain. [ Flint Hills Resources, LP v. Jag Energy, Inc., 559 F.3d 373 (5th Cir. 2009)]

Question 16

A Question of Ethics-Revocation of Acceptance.
Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products. Between July and September 2004, Scotwood delivered thirty-seven shipments of flake to Frank Miller Sons, Inc. After each delivery, Scotwood billed Miller, which paid thirty-five of the invoices and processed 30 to 50 percent of the flake. In August, Miller began complaining about the quality. Scotwood assured Miller that it would remedy the situation. Finally, in October, Miller told Scotwood, "This is totally unacceptable. We are willing to discuss Scotwood picking up the material." Miller claimed that the flake was substantially defective because it was chunked. Calcium chloride maintains its purity for up to five years, but if it is exposed to and absorbs moisture, it chunks, making it unusable. In response to Scotwood's suit to collect payment on the unpaid invoices, Miller filed a counterclaim in a federal district court for breach of contract, seeking to recover based on revocation of acceptance, among other things. [Scotwood Industries, Inc. v. Frank Miller Sons, Inc., 435 F.Supp.2d 1160 (D.Kan. 2006)]
1. What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
2. Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.

Question 17

Critical Legal Thinking.
Under what circumstances should courts not allow fully informed contracting parties to agree to limit remedies?

Question 18

Business Law Writing.
Suppose that you are a collector of antique cars and you need to purchase spare parts for a 1938 engine. These parts are not made anymore and are scarce. You discover that Beem has the spare parts that you need. To get the contract with Beem, you agree to pay 50 percent of the purchase price in advance. You send the payment on May 1, and Beem receives it on May 2. On May 3, Beem, having found another buyer willing to pay substantially more for the parts, informs you that he will not deliver as contracted. That same day, you learn that Beem is insolvent. Write three paragraphs fully discussing any possible remedies that would enable you to take possession of the parts.