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Chapter 22 - Remedies for Breach of Sales Contracts
CHAPTER 22
REMEDIES FOR BREACH OF SALES CONTRACTS
I. OBJECTIVES:
This chapter is intended to acquaint the student with the remedies available to an injured
party, the Code rules that govern buyer-seller agreements as to remedies, and the Code's
statute of limitations. After reading the chapter and attending class, the student should be
able to:
1. Recall the basic objective of the remedies provided by the Code for a breach of
contract for the sale of goods.
2. Explain what is meant by the term liquidated damages and discuss when the Code
allows the enforcement of a liquidated damages clause in a contract for the sale of
goods.
3. Recall the statute of limitation provided in the Code that is applicable to lawsuits
alleging breach of contract for the sale of goods.
4. List and describe the remedies that the Code makes available to an injured seller.
5. List and describe the remedies that the Code makes available to an aggrieved buyer.
6. Explain what is meant by the term cover in the context of a contract for the sale of
goods.
7. Explain what is meant by the terms incidental damages and consequential damages
and indicate when an injured buyer is able to recover consequential damages.
8. Discuss when an aggrieved buyer has a right to specific performance of a contract for
the sale of goods.
II. ANSWER TO INTRODUCTORY PROBLEM
A. The first question following the hypothetical situation that appears at the
beginning of the chapter asks what options are open to a seller that is in the
process of manufacturing a custom-made item when the customer tells the
seller she no longer wishes to acquire the item. If the seller is in the process
of manufacturing the goods, it has two choices: it may complete manufacture
of the goods, or it may stop manufacture and sell the uncompleted goods for
their scrap or salvage value. In choosing between these alternatives, the seller
should select the alternative that will minimize the loss.
B. The second question asks for the options open to an aggrieved seller if the
buyer refuses to accept the item that was the subject of the contract between
them. The seller has several options: (1) try to resell the goods in good faith
and in a commercially responsible manner— and then either recover the
difference between the contract price and the price it received on the resale or
to recover the purchase price if the effort to resell is unavailing; or (2) recover
damages based on the difference between the contract price and the current
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 22 - Remedies for Breach of Sales Contracts
market price at the time of the breach or, alternatively, damages based on the
“profit” the seller lost when the sale was not completed.
C. The third questions asks for the options open to an aggrieved buyer when the
seller indicates that it will not be able to provide a time-sensitive custom-
manufactured item on the agreed-upon schedule. In this situation, the buyer
has the right to “cover” and obtain damages based on the difference between
the cost of cover and the contract price plus incidental damages or to recover
damages based on the difference between the contract price and the current
market price of the item.
22-2
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 22 - Remedies for Breach of Sales Contracts
D. The fourth question asks whether the buyer has any options if a seller
proposes to sell a kind item to someone else in violation of the agreement to
sell it to the buyer. If the goods are unique and not otherwise obtainable, the
buyer would have the right to have specific performance of the contract—i.e.
the right to obtain the dress that was specially manufactured for her.
E. The fifth question raises the question as to whether, having made a promise
and a commitment to produce the wedding dress in time for the wedding, it
would be ethical to sell it to someone else who offers more money for it. This
is a moral temptation—a choice between right and wrong—and it is difficult
to construct an argument that it would be ethical on these facts to sell the dress
to someone else.
III. SUGGESTIONS FOR LECTURE PREPARATION:
A. Introduction
1. Remedies Generally. Note the purpose of the Code remedy provisions: to place
the injured party in the same position as if the contract had been performed. This
purpose explains why usually only active damages and not consequential or penal
damages are recoverable by the harmed party.
2. Agreements Concerning Remedies. State the restrictions on the parties' ability to
set, limit or eliminate the amount of damages. Essentially the law will not
interfere with the parties' agreement concerning remedies. The Code will not
enforce the parties' agreement when it is unconscionable; the amount must be
"reasonable in the light of anticipated or actual harm caused by the breach, the
difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise
obtaining an adequate remedy." Code Section 2-718.
Star-Shadow Productions, Inc. v. Super 8 Sync Sound System (page 623). Where
price sheets and the boxes containing film contained a limitation of liability clause
limiting the seller’s liability for defective film to replacing the film, the clause
was effective in limiting the seller’s liability. The court rejected the buyer’s
contention that the limitation of liability failed its essential purpose and held that
the buyer had gotten what it bargained for.
Points for discussion: What could the buyer have done to better protect itself in
this case against the problems it experienced?
Additional Examples: Problem Cases #1 and 2..
3. Note the statute of limitations is 4 years and explain when it begins to run.
Discuss how the statute applies to warranties for future performance.
Example: Problem Case #3.
B. Seller's Remedies.
1. List on the chalkboard the remedies available to a seller when the buyer breaches
or is about to breach the sales contract. Refer to the materials on anticipatory
breach in Chapter 21. Note when the seller may invoke each remedy. A good
way to convey the remedies is to have four columns on the chalkboard, one titled
"Seller's Remedies," a second titled "Procedure" a third titled "Damages
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 22 - Remedies for Breach of Sales Contracts
Recovered," and the last titled "Events Invoking the Remedy." As you explain
each remedy, the columns should be completed. With this presentation the
students will be able to discern when the seller has what rights.
2. Cancellation and Withholding of Delivery. Note that when the buyer breaches the
contract, the seller has the right to cancel the contract and withhold delivery.
Point out the seller's special duty to mitigate his damages when the buyer
breaches the contract while the seller is in the process of manufacturing the goods.
Example: Problem Cases #4.
3. Resale. Note that where the seller sets aside goods intended for the contract or
completes their manufacture, he is not required to try to resell them. However,
where he does make a commercially reasonable resale in good faith, he is entitled
to recover damages based on the difference between the contract price and the
resale price plus incidental damages. This is a good time to illustrate various kinds
of damages that might fall into the "incidental" category.
4. Recovery of Purchase Price. Discuss the limited circumstances under which the
seller is entitled to recover the full purchase price from the buyer.
5. Damages for Rejection on Repudiation. Discuss the two measures that are used to
compute these damages--(1) the difference between the contract price and the
market price and (2) the lost profit (including overhead)--and when each may be
used. Work through the troll examples in the book, showing how these measures
are applied.
Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co. (page
627). Where a buyer repudiates a contract and the seller is a “lost volume seller”
because it had the capacity to produce the goods called for by the contract as well
as any other similar goods that another buyer might seek to obtain, the aggrieved
seller is entitled to recover as a measure of damages the profit that it lost on the
sale together with incidental and other damages.
Points for Discussion. Ask the students why the measure of damages suggested by
the Jewish Federation, namely incidental damages, would not be sufficient to put
Cedar Forrest Products in the same position it would have been in had the contract
not been repudiated.
Examples: Problem Cases # 5 and 6.
6. Right to Reclaim. Give special treatment to the rights of the reclaiming seller,
relating the seller's rights to those of buyers of the goods. Note the purpose for
permitting the seller to reclaim goods from an insolvent buyer: to prevent the
buyer from profiting from his deceit of the seller.
7. Discuss the Code Rule on Liquidated Damages.
8. The Global Business Environment: Seller’s Remedies in International
Transactions (page 626): Discuss the similarities between the remedies available
to an aggrieved seller under the UCC and the remedies available under the CISG.
C. Buyer's Remedies
1. List on the chalkboard the buyer's remedies when the seller breaches or is about to
breach the contract. Refer to the materials on anticipatory breach in Chapter 21.
You may wish to convey these remedies by having four columns on the
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 22 - Remedies for Breach of Sales Contracts
chalkboard, one titled "Buyer's Remedies," a second titled "Procedure," a third
titled "Damages Recovered," and the last titled "Events Invoking the Remedy."
Beer v. Bennett (page 630). Where a buyer justifiably revoked his acceptance of
a used automobile that had been disassembled by the seller and ultimately found
to not have all the necessary parts to reassemble it, the buyer was entitled to the
return of his purchase price and had the right to hold the goods at the seller’s
disposition for a reasonable time sufficient to permit the seller to remove them.
The court upheld a judgment requiring the return of the purchase price to the
buyer and his making arrangements for return shipping and payment of the same.
Cyberlaw in Action: E-Commerce Aids Buyers (page 630). Point out to students
how e-commerce can facilitate the giving of notice by a buyer or seller.
2. Right to Cover. Indicate the buyer has the right, on the seller's default, to
purchase substitute goods and to recover as damages the difference between the
contract price and the cost of cover.
3. Note the special conditions for the buyer to recover consequential damages
caused by the seller's breach.
4. Damages for Non-Delivery. Note that a measure of damages available to the
buyer is the difference between the contract price and the market price plus
incidental damages.
Green Wood Industrial Company v. Forceman International Development Group,
Inc. (page 632). Where the seller failed to deliver goods and the buyer did not
cover, the buyer was entitled to recover damages based on its lost profits.
However, the court concluded that it was improper for the trial court to allow
recovery as part of its claim for lost profits a claim by a third party against the
buyer for its alleged lost profits. The court said that the plaintiff-buyer would
have to prove to a reasonable certainty that the liability could and would be
enforced against the plaintiff or that the plaintiff otherwise could and would
satisfy the obligation.
Points for Discussion: What concerns did the court have about allowing the third
party’s claim for lost profits to be included in the buyer’s own claim for damages?
What course of action might the buyer follow to protect itself re the third-party
claim in this instance? How significant is/should be the fact that the third-party
claim would arise and be resolved under Chinese law?
4. Damages for defective goods. Note that the measure of damages for defective
goods is the difference between the value of the goods received and the value the
goods would have had if they had been as warranted.
Cahaba Disaster Recovery v. Rogers (page 634). Where the buyer order
“absorbent boom” to be used in the response to the Deepwater Horizon drilling
rig fire and explosion and the seller delivered boom that was not in-fact absorbent
boom, the buyer was entitled to recover the difference between the boom as
warranted and the value of the goods received at the time and place of acceptance
(which was zero).
Example: Problem Case #7.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 22 - Remedies for Breach of Sales Contracts
Ethics in Action: Should the Buyer get an Honest Answer? (page 606): This
question flags an area where societal expectations and legal obligations are
changing. While the prevailing sentiment may have been caveat emptor with the
buyer expected to have to be on guard to fully protect his own interests, this is
changing. Many people would find that the salesman had not been honest in his
answer and that if he were to put himself in the shoes of the buyer he would not
thought he had been fairly and honestly dealt with. Increasingly there is seen to
be an obligation on the part of the seller to disclose material facts known to him
and which he has reason to believe a reasonable buyer would want to know.
6. Consequential damages. Indicate when consequential damages are available
Example: Problem Case #8.
7. Specific performance. Note the circumstances when a buyer can obtain specific
performance and require the seller to give the goods called for by the contract.
Example: Problem Case #9.
8. Buyer and Seller Agreements as to Remedies. Review the rules concerning
agreements between buyers and sellers as to remedies.
9. The Global Business Environment: Buyer’s Remedies in International
Transactions (page 607): Discuss the similarities and the differences between the
remedies available to an aggrieved buyer under the UCC and the remedies
available under the CISG.
IV. RECOMMENDED REFERENCES:
See the references listed in Chapter 19, Formation of Sales Contracts.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
