978-1285770178 Lecture Note BL ComLaw 1e IM-Ch18 Part 3

CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 19

to pay the necessary amount in French francs. Wire transfers are a major part of electronic fund transfer

whole or in part.

4. Students may find it helpful to list the remedies discussed in this chapter and think about what the law is

attempting to do in making these remedies available. Generally, it may be said that the UCC remedies are

intended to put a nonbreaching party is as good a position as he or she would have been in if the other party

had fully performed. More specifically, a seller is allowed to recover the same profit that he or she would have

had if the buyer had not breached. A buyer’s recovery may amount to the cost of cover (plus incidental and

For example, remedies available to the seller if the buyer breaches before acceptance are (1) withholding

delivery, (2) stopping delivery, (3) reselling goods, (4) recovering damages, (5) canceling the contract, and (6)

whole or in part.

CHAPTER 18: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 23

whole or in part.

What is the policy behind the right of assurance? As the court in the Koch case noted, “A good

relationship is built on good communication. . . . [T]hat aphorism is no less true of long-term business dealings than it

is of marriages. . . . The law of contract . . . is designed to increase certainty in our dealings with one another.

Otherwise, few reasonable businesses would be willing to invest in long-term cooperative agreements which, by virtue

of the deal-specific investment, expose each party to significant risks of hold-up by the other. Thus, when one’s

contractual partner has reasonable grounds to fear that the contract will not be performed, one must answer those

fears at the risk of giving the counterparty license to terminate the contract.”

the contract price with interest, the amounts of the sales tax and delivery charge, and attorney’s fees, and ordered

Bobb’s to remove the piano. “[T]he purchaser of non–conforming goods like the offending piano retains the option to

claim either the difference in value or, as plaintiff clearly did in this case, in effect, to cancel the deal and get his

money back. This principle is based on the common sense idea that the purchaser is entitled to receive what he

wanted to buy and pay for and that the seller is not free to supply any non-conforming item [he or] she wishes just so

If the defendant had delivered the piano in new condition and the plaintiff had refused to pay for it

only out of “buyer’s remorse,” what might the court have ruled in this case? In these circumstances, the buyer

would have breached the parties’ contract. If the piano had not been returned and was still in the buyer’s possession,

the seller could sue for the purchase price or reclaim the goods. In either case, the seller might also sue for damages,

which would ordinarily be the difference between the contract price and the market price at the time and place of

REVIEWING—

 PERFORMANCE AND BREACH

OF SALES AND LEASE CONTRACTS 

GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component used in the

manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment

whole or in part.

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 while 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. Ask your

students to answer the following questions, using the information presented in the chapter.

1. Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or

why not? Because Egan had accepted the previous shipments, and because they were, like this shipment,

only 5 percent short and of a quality superior to that designated in the parties’ contract, GFI had a legitimate

reason to expect that Egan would accept the fourth shipment.

2. Does the substitution of carriers in the third shipment constitute a breach of the contract by GFI?

Explain. The UCC allows the seller to substitute carriers if the carrier becomes unavailable or impracticable.

Thus, if GFI can show that Air Express was unavailable or impracticable through no fault of either itself or

Egan, the substitution of carriers would not be a breach of the contract.

3. Suppose that the silicon used for the chips becomes unavailable for a period of time.

Consequently, 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? The doctrine of commercial impracticability could be used to excuse GFI from further performance

of its contractual obligations. When the performance of a contract becomes extremely difficult due to an

unexpected occurrence, a party may invoke this doctrine to release it from performing an obligation that might

be impossible or financially ruinous. In this situation, because GFI cannot obtain the silicon necessary to

make enough chips to fulfill its obligations under the contract, it can ask the court to release it from further

performance due to commercial impracticability.

4. Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not? The

contract between GFI and Egan is an installment contract. Under the UCC, a buyer or lessee can reject an

installment only if the nonconformity substantially impairs the value of the installment and cannot be cured.

Given the general circumstances described in this problem, a court would most likely determine that the fourth

shipment, which is only 5 percent short in quantity and upgraded in quality, does not constitute a substantial

nonconformity.

 DEBATE THIS 

If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach

of the contract—no exceptions should ever be allowed. If both parties agree to a specific carrier for the

goods, then of course, if there is a substitution of carriers, the seller is in breach and buyer can not only

refuse the shipment but sue for damages. That’s why we call such pieces of paper agreements—both parties

agreed to the terms in the contract.

To impose such a hard-and-fast rule about never being able to substitute carriers would impose an

undue burden on all sellers of goods that have to be transported. If there are no exceptions, then even a

bona fide reason for the substitution—such as a labor strike—will never prevail. Much economic damage will

result, and for no benefit to society.

whole or in part.