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CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 11
whole or in part.
whole or in part.
14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
ENHANCING YOUR LECTURE—
EVERY DAY COUNTS
The term reasonable appears throughout the UCC. With respect to the right of rejection, the UCC
provides that the buyer or lessee must reject goods within a “reasonable” time. The UCC makes it clear,
however, that parties who desire more certainty can include a provision in their contract specifying the time
period for rejection. UCC 1–204(1) states that “whenever this act requires any action to be taken within a
reasonable time, any time which is not manifestly unreasonable may be fixed by agreement.” Suppose,
though, that a contract states that the buyer’s right to reject the goods is limited to ten days. Even though “ten
days” is more specific than “a reasonable time,” there is still no guarantee that a dispute will not arise over the
letter of the law in this instance.
In one case, for example, the question arose as to whether a ten-day period included holidays and
weekends. If so, then the buyer’s notification of rejection was just one day late. The court gave the buyer the
benefit of the doubt on the inclusion of holidays and weekends, but did not agree with the buyer that just one
day late was acceptable. The letter of the law, as expressed in the parties’ contract, had stated ten days, not
eleven. Therefore, concluded the court, the buyer’s failure to reject the goods within the ten-day period
constituted an acceptance of the goods.a
THE BOTTOM LINE
This case underscores the importance of making sure that both parties (1) understand precisely what a
certain contract term means and (2) take each contract term seriously.
a. Northwest Airline, Inc. v. Aeroservice, Inc., 168 F.Supp.2d 1052 (D.Minn. 2001).
2. Revocation of Acceptance
Acceptance can be revoked if a nonconformity substantially impairs the value and—
• Acceptance was based on a reasonable assumption that the nonconformity would be cured,
and it has not been cured within a reasonable period of time [UCC 2–608(1)(a), 2A–517(1)(a)].
• The buyer or lessee did not discover the nonconformity before acceptance, because it was
difficult or because assurances made by the seller or lessor that the goods conformed kept the
3. The Right to Recover Damages for Accepted Goods
CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 15
whole or in part.
A buyer or lessee may keep nonconforming goods and recover damages, if the seller or lessor is
notified within a reasonable time after the defect was or should have been discovered (or within the
time specified in the contract) [UCC 2–607(3), 2A–516(3)]. The measure of damages is the
difference between the value of the goods as accepted and their value if they had been delivered
as promised, plus incidental and consequential damages [UCC 2–714(2), 2A–519(4)].
CASE SYNOPSIS—
Case 18.3: Fitl v. Strek
At a sports card show in 1995, James Fitl of Omaha, Nebraska, met Mark Strek, doing business as Star
Cards of San Francisco. On Strek’s representation about the condition of a certain baseball card, Fitl bought it
from Strek for $17,750. In May 1997, Fitl sent the card to Professional Sports Authenticators, a sports-cards
grading service, which told Fitl that the card was ungradable. Fitl complained to Strek, who replied that Fitl
should have acted within “a typical grace period for the unconditional return of a card, . . . 7 days to 1 month”
of its receipt. ASA Accugrade, Inc., another grading service, agreed that the card was ungradable. Fitl filed a
suit in a Nebraska state court against Strek, seeking damages. The court awarded Fitl $17,750, plus his court
costs. Strek appealed.
The Nebraska Supreme Court affirmed. In the circumstances of this case, notice of a defect in the goods
two years after their purchase was reasonable. Fitl had reasonably relied on Strek’s representation that the
goods were “authentic,” which they were not, and when their defects were discovered, Fitl had given a timely
notice. “[T]he policies behind the notice requirement, to allow the seller to correct a defect, to prepare for
negotiation and litigation, and to protect against stale claims at a time beyond which an investigation can be
completed, were not unfairly prejudiced by the lack of an earlier notice to Strek. Any problem Strek may have
had with the party from whom he obtained the baseball card was a separate matter from his transaction with
Fitl, and an investigation into the source of the altered card would not have minimized Fitl’s damages.
..................................................................................................................................................
Notes and Questions
Who has the burden to show a breach, or its absence, in cases involving attempts to recover
damages for accepted goods? Under the UCC, the burden is on the buyer to show a breach with respect to
the goods accepted. Was that burden met in this case? Here, as the state supreme court noted, “Fitl
presented evidence that the baseball card was not authentic, as he had been led to believe by Strek’s
representations. Strek did not refute Fitl’s evidence.”
ANSWER TO THE “WHAT IF THE FACTS WERE DIFFERENT?”
QUESTION IN CASE 18.3
Suppose that Fitl and Strek had included in their deal a written clause requiring Fitl to give notice
of any defect in the card within “7 days to 1 month” of its receipt. Would the result have been
different? Why or why not? Possibly. The parties to a sale of lease contract can insert such a provision,
CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 17
whole or in part.
THE CISG’S APPROACH TO
REVOCATION OF ACCEPTANCE
Under the UCC, a buyer or lessee who has accepted goods may be able to revoke acceptance under the
circumstances just mentioned. Provisions of the United Nations Convention on Contracts for the International
Sale of Goods (CISG) similarly allow buyers to rescind their contracts after they have accepted the goods.
The CISG, however, takes a somewhat different—and more direct—approach to the problem than the
UCC does. In the same circumstances that permit a buyer to revoke acceptance under the UCC, under the
CISG the buyer can simply declare that the seller has fundamentally breached the contract and proceed to
sue the seller for the breach. Article 25 of the CISG states that a “breach of contract committed by one of the
parties is fundamental if it results in such detriment to the other party as substantially to deprive him [or her] of
what he [or she] is entitled to expect under the contract.”
FOR CRITICAL ANALYSIS
What is the essential difference between revoking acceptance and bringing a suit for breach of
contract?
503(2].
ANSWERS TO BUSINESS QUESTIONS IN THE FEATURE
1. Under what circumstances is a negotiated settlement for a breach preferable to litigation?
Working with your attorney, you can ascertain what the anticipated costs and benefits are of a negotiated
settlement versus litigation. In other words, the rational businessperson does a cost–benefit analysis before
deciding whether to go to court.
2. Assume that you are in a dispute over a breach of contract and you discover that the contract
does not explicitly mention any remedies. What do you do now? You look to the UCC. Specifically you
look in Part 7 of the UCC and examine Sections 2–701 through 2–725.
B. CONSEQUENTIAL DAMAGES
whole or in part.
whole or in part.
whole or in part.
14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
ENHANCING YOUR LECTURE—
EVERY DAY COUNTS
The term reasonable appears throughout the UCC. With respect to the right of rejection, the UCC
provides that the buyer or lessee must reject goods within a “reasonable” time. The UCC makes it clear,
however, that parties who desire more certainty can include a provision in their contract specifying the time
period for rejection. UCC 1–204(1) states that “whenever this act requires any action to be taken within a
reasonable time, any time which is not manifestly unreasonable may be fixed by agreement.” Suppose,
though, that a contract states that the buyer’s right to reject the goods is limited to ten days. Even though “ten
days” is more specific than “a reasonable time,” there is still no guarantee that a dispute will not arise over the
letter of the law in this instance.
In one case, for example, the question arose as to whether a ten-day period included holidays and
weekends. If so, then the buyer’s notification of rejection was just one day late. The court gave the buyer the
benefit of the doubt on the inclusion of holidays and weekends, but did not agree with the buyer that just one
day late was acceptable. The letter of the law, as expressed in the parties’ contract, had stated ten days, not
eleven. Therefore, concluded the court, the buyer’s failure to reject the goods within the ten-day period
constituted an acceptance of the goods.a
THE BOTTOM LINE
This case underscores the importance of making sure that both parties (1) understand precisely what a
certain contract term means and (2) take each contract term seriously.
a. Northwest Airline, Inc. v. Aeroservice, Inc., 168 F.Supp.2d 1052 (D.Minn. 2001).
2. Revocation of Acceptance
Acceptance can be revoked if a nonconformity substantially impairs the value and—
• Acceptance was based on a reasonable assumption that the nonconformity would be cured,
and it has not been cured within a reasonable period of time [UCC 2–608(1)(a), 2A–517(1)(a)].
• The buyer or lessee did not discover the nonconformity before acceptance, because it was
difficult or because assurances made by the seller or lessor that the goods conformed kept the
3. The Right to Recover Damages for Accepted Goods
CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 15
whole or in part.
A buyer or lessee may keep nonconforming goods and recover damages, if the seller or lessor is
notified within a reasonable time after the defect was or should have been discovered (or within the
time specified in the contract) [UCC 2–607(3), 2A–516(3)]. The measure of damages is the
difference between the value of the goods as accepted and their value if they had been delivered
as promised, plus incidental and consequential damages [UCC 2–714(2), 2A–519(4)].
CASE SYNOPSIS—
Case 18.3: Fitl v. Strek
At a sports card show in 1995, James Fitl of Omaha, Nebraska, met Mark Strek, doing business as Star
Cards of San Francisco. On Strek’s representation about the condition of a certain baseball card, Fitl bought it
from Strek for $17,750. In May 1997, Fitl sent the card to Professional Sports Authenticators, a sports-cards
grading service, which told Fitl that the card was ungradable. Fitl complained to Strek, who replied that Fitl
should have acted within “a typical grace period for the unconditional return of a card, . . . 7 days to 1 month”
of its receipt. ASA Accugrade, Inc., another grading service, agreed that the card was ungradable. Fitl filed a
suit in a Nebraska state court against Strek, seeking damages. The court awarded Fitl $17,750, plus his court
costs. Strek appealed.
The Nebraska Supreme Court affirmed. In the circumstances of this case, notice of a defect in the goods
two years after their purchase was reasonable. Fitl had reasonably relied on Strek’s representation that the
goods were “authentic,” which they were not, and when their defects were discovered, Fitl had given a timely
notice. “[T]he policies behind the notice requirement, to allow the seller to correct a defect, to prepare for
negotiation and litigation, and to protect against stale claims at a time beyond which an investigation can be
completed, were not unfairly prejudiced by the lack of an earlier notice to Strek. Any problem Strek may have
had with the party from whom he obtained the baseball card was a separate matter from his transaction with
Fitl, and an investigation into the source of the altered card would not have minimized Fitl’s damages.
..................................................................................................................................................
Notes and Questions
Who has the burden to show a breach, or its absence, in cases involving attempts to recover
damages for accepted goods? Under the UCC, the burden is on the buyer to show a breach with respect to
the goods accepted. Was that burden met in this case? Here, as the state supreme court noted, “Fitl
presented evidence that the baseball card was not authentic, as he had been led to believe by Strek’s
representations. Strek did not refute Fitl’s evidence.”
ANSWER TO THE “WHAT IF THE FACTS WERE DIFFERENT?”
QUESTION IN CASE 18.3
Suppose that Fitl and Strek had included in their deal a written clause requiring Fitl to give notice
of any defect in the card within “7 days to 1 month” of its receipt. Would the result have been
different? Why or why not? Possibly. The parties to a sale of lease contract can insert such a provision,
CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 17
whole or in part.
THE CISG’S APPROACH TO
REVOCATION OF ACCEPTANCE
Under the UCC, a buyer or lessee who has accepted goods may be able to revoke acceptance under the
circumstances just mentioned. Provisions of the United Nations Convention on Contracts for the International
Sale of Goods (CISG) similarly allow buyers to rescind their contracts after they have accepted the goods.
The CISG, however, takes a somewhat different—and more direct—approach to the problem than the
UCC does. In the same circumstances that permit a buyer to revoke acceptance under the UCC, under the
CISG the buyer can simply declare that the seller has fundamentally breached the contract and proceed to
sue the seller for the breach. Article 25 of the CISG states that a “breach of contract committed by one of the
parties is fundamental if it results in such detriment to the other party as substantially to deprive him [or her] of
what he [or she] is entitled to expect under the contract.”
FOR CRITICAL ANALYSIS
What is the essential difference between revoking acceptance and bringing a suit for breach of
contract?
503(2].
ANSWERS TO BUSINESS QUESTIONS IN THE FEATURE
1. Under what circumstances is a negotiated settlement for a breach preferable to litigation?
Working with your attorney, you can ascertain what the anticipated costs and benefits are of a negotiated
settlement versus litigation. In other words, the rational businessperson does a cost–benefit analysis before
deciding whether to go to court.
2. Assume that you are in a dispute over a breach of contract and you discover that the contract
does not explicitly mention any remedies. What do you do now? You look to the UCC. Specifically you
look in Part 7 of the UCC and examine Sections 2–701 through 2–725.
B. CONSEQUENTIAL DAMAGES
whole or in part.
