Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 26
REMEDIES FOR BREACH OF SALES CONTRACTS
RESTATEMENT
Both the buyer and seller have certain remedies available to them when the other side breaches the contract. The
remedies vary according to the nature of the breach, but all rights must be preserved within the applicable statutes of
limitations.
The seller’s remedies include a lien on the goods sold to a buyer on credit. If the buyer will not or cannot perform, the
seller may cancel the contract or resell the goods. If the goods were specially manufactured or cannot be resold, the
seller may bring an action for the price.
Remedies for buyers include rejection of nonconforming goods and revocation of acceptance of goods the buyer
discovers subsequently to be defective. If the seller fails to deliver the goods, the buyer may cancel the contract or
recover the difference in price for substitute goods.
If the goods are unique, the buyer may seek recovery of the goods. For goods that are damaged or nonconforming,
the buyer may recover damages because the goods are not as the contract required.
Buyers and sellers can agree to contract remedies in advance through liquidated damages clauses, limitation of
remedies, and provisions for the use of down payments and deposits. The parties may also agree to waive or
preserve defenses.
STUDENT LEARNING OUTCOMES
LO.1: List the remedies of the seller when the buyer breaches a sales contract.
LO.2: List the remedies of the buyer when the seller breaches a sales contract.
LO.3: Determine the validity of clauses limiting damages.
INSTRUCTOR’S INSIGHTS
Break the chapter down into five components – related Learning Outcomes are indicated in ( ):
1. What are the statutes of limitations for suits on breaches on contract?
2. What are the remedies of the seller for breach of contract?
Explain the seller’s lien and how it works (LO.1)
Discuss the seller’s right of resale (LO.1)
Cover the seller’s right to cancel (LO.1)
3. What are the remedies of the buyer for breach of contract?
Cover the buyer’s rights of rejection and revocation (LO.2)
Explain when the buyer can recover damages for nondelivery and when recovery of the goods is available
(LO.2)
4. What are the contract provisions the parties can agree to as remedies?
Discuss the validity of damage limitation clauses (LO.3)
Explain the use of down payments and deposits as damages
255
256 Chapter 26
5. What are the remedies for buyers and sellers in the international sale of goods?
CHAPTER OUTLINE
I. What are the Statutes of Limitations for Suits on Breaches of Contract?
A. Claims made under the UCC for contract breaches
B. Non-code claim – varies from state to state
II. What are the Remedies of the Seller for Breach of Contract? (See Figure 26-1 in text)
A. Seller’s lien
B. Seller's remedy of stopping shipment
1. Plane loads, train car loads, and boat loads can be stopped if buyer has not provided assurances
2. Can stop any size shipment if buyer is insolvent and receiving goods on credit
C. Resale by seller
1. The seller is not liable for profit on resale
2. With regard to resale of goods, it is important to note that UCC §§ 2-711(3) and 2-706(6) provide that
3. Must be conducted using reasonable commercial standards
D. Cancellation by seller because buyer repudiates or materially breaches
E. Seller’s action for damages under the market price formula – damages: difference between market price and
F. Seller's action for lost profits
256
G. Other types of damages
CASE BRIEF: Bowen v. Gardner
425 S.W. 3d 875 (Ark. App. 2013)
FACTS: James Bowen and Richard Cagle (appellants), doing business as B & C Shavings (B & C) agreed
in 2009 to sell Kendall Gardner a shavings mill to produce wood shavings for poultry processors.
They agreed that B & C would build an eight-foot shaving mill for Gardner. On July 13, 2009, B & C
faxed an invoice to Gardner reflecting a purchase price of $86,200, a thirty-percent down payment
of $25,860, and a “balance due before shipment” of $60,340. Gardner sent a payment of $25,920,
which included the bank's fees, via wire transfer to B & C on July 14, 2009.
In August 2009, Gardner discovered that the poultry plants with whom he had planned on doing
business were no longer interested in purchasing wood shavings. Gardner called Cagle to inform
him of the situation and to see if B & C could stop production of the machine.
On September 10, 2009, B & C wrote a letter to Gardner informing him that the shaving machine
had been finished and that the balance of $60,340 was due. The letter further stated that Gardner
had “ten days from this date ... to pay the balance due or you will lose the down payment that you
paid.” Gardner spoke with Cagle several times on the phone that weekend and eventually
responded with a letter dated September 14, 2009, in which he explained his financial
circumstances and asked B & C to help him recover part of his down payment. B & C eventually
sold the machine to another company for $86,500 in November 2009. B & C never returned any of
Gardner's down payment to him.
Gardner filed a complaint seeking recovery of the down payment.
The eight-foot machine ordered by Gardner was unusual in the industry and was a special order. B
& C was able to sell the machine after providing additional work to meet the new purchaser's
specifications. B & C spent $10,406.67 in order to be able to sell the machine to another company.
The trial court concluded that “the equitable thing here” would be for B & C to return Gardner's
down payment to him, less the money that B & C spent making modifications to the machine so
that it could be sold. The court therefore subtracted the $10,406 in modifications from the $25,860
down payment and concluded that Gardner was entitled to be awarded $15,454, plus postjudgment
interest. B & C appealed.
ISSUE: What are the damages when a seller sells the goods the buyer did not take at a higher price?
HOLDING AND
REASONING: B & C was able to resell the shaving machine for $300 more than the contract price; for that
reason, there is no difference between the resale price and the contract price for B & C to “recover.”
H. Seller's action for the purchase price
I. Seller's nonsale remedies
257
258 Chapter 26
III. What are the Remedies of the Buyer for Breach of Contract? (See Figure 26-2 in text)
A. Rejection of improper tender
1. With regard to rejection of the goods by the buyer, you may want to consider a discussion of the proper
2. The “rule of perfect tender” has drawn enormous criticism
DISCUSSION POINTS: Thinking Things Through
The Lululemon Yoga Pants That Were Lemons
Lululemon is entitled to damages for the defective fabric. It would be excused from payment and could return any
fabric not yet used. Lululemon would also not have to accept any future defective shipments. There would be
incidental damages for shipping costs, even things such as costs of signage explaining why there is a shortage in the
supply of yoga pants. Consequential damages are a possibility. The damages here are not the traditional
consequential damages that we see – such as a penalty for late delivery. There are earnings and shareholder losses
that result from lack of inventory. If Lululemon can make direct connections between the loss of the fabric source and
these financial indicators, the suit could be a huge one. However, a court would need to determine which types of
damages would be enforceable and whether there were any limitations on recovery.
B. Revocation of acceptance
1. If nonconformity substantially impairs the value of the contract to the buyer
2. Buyer could not have discovered defect or was assured defect would be fixed
3. Procedure for revoking acceptance
c. Disposition of goods after revocation
CASE BRIEF: Castro v. Ernie’s Auto
2012 WL 6682134 (Mont. 2012)
FACTS: On March 4, 2011, Lola Castro (of Lodge Grass, Montana) called Ernie's Auto in Billings to inquire
about a used 1995 Cadillac DeVille advertised for sale in a local newspaper. The price was listed at
$1,995, but Ernie's agreed to sell it to Castro for $1,500. On Friday, March 4, Castro and her
husband drove to Billings to purchase the car. Upon arrival at Ernie's lot at around 5:30 p.m.,
Castro signed multiple purchase documents each of which indicated in bold print that the car was
being sold “AS IS” without any expressed or implied guarantees or warranties. Neither Castro nor
her husband test drove the car before purchase.
At around 6:00 p.m., Castro and her husband left Ernie's. Castro's husband drove the Cadillac and
Castro drove the family's other car. Approximately 2.5 miles from Ernie's, the Cadillac began
steaming and losing fluids from the radiator. They pulled into a Town Pump service station and left
the vehicle there without seeking service. Castro testified that her husband called Ernie's at that
time and multiple times over the following few days, but there is no record of those discussions.
Castro left the Cadillac parked at the Town Pump until the following Wednesday. On that day, she
and her husband returned to the Town Pump, purchased and installed a battery in the Cadillac, and
drove it back to Ernie's. They parked it on the street near Ernie's lot, returned the keys to Ernie's
and demanded refund of their purchase money. Ernie's refused to refund Castro's money.
258
On April 1, 2011, Castro filed a Complaint in Yellowstone County Justice Court. She alleged Ernie's
had breached an express warranty, violated the Montana Consumer Protection Act, and was
negligent. She also alleged that she had the right to revoke her acceptance. She asked for a refund
of her $1,500 purchase money, as well as $3,000 in damages, and reasonable attorney fees.
The Justice Court granted Ernie's motion for a directed verdict. Castro appealed to the District
Court and the District Court affirmed the directed verdict and dismissed Castro's appeal. Castro
appealed again.
ISSUE: Can a buyer revoke acceptance on an “as is” purchase of an old used car?
HOLDING: (1) buyer did not meet her burden of producing evidence that the automobile was nonconforming,
as a threshold requirement for revocation of acceptance, but (2) buyer was entitled to a return of
REASONING: Castro had the burden of providing credible evidence that the vehicle was nonconforming, but
failed to do so. While she recounted the problems they had with the vehicle − the engine light came
on, the car leaked fluids, and smoke or steam was emitted − she failed to establish that these
problems constituted nonconformities in a 16-year-old car purchased “as is.” Moreover, Castro
herself testified that replacement of the battery rendered the car operable. Castro did not have the
car checked by a mechanic for proof of nonconformity or to determine the actual condition of the
vehicle. As noted by the District Court, a purchaser of a used 1995 vehicle in 2011 “should ...
expect that some repairs will be necessary such as belts, hoses, battery, seals, tire balancing and
alignment, etc. These sorts of things do not render a motor vehicle unsafe.”
Without prima facie evidence of nonconformity, the Justice Court had no basis for proceeding to the
remaining requisites of the statute, which in any event were not established by way of Castro's
limited testimony. There was simply no evidence to support a ruling in favor of Castro on her
“revocation of acceptance” claim.
Castro accepted the car without test driving it. However, as the District Court found, a salesperson
assured Castro that it was in good working order. Castro testified that she discovered the
nonconformity when the car became inoperable less than three miles after leaving Ernie's Auto.
She returned the car and the keys to Ernie's Auto within the week and informed them that she was
revoking her acceptance. Section 30-2-608, MCA, provides Castro the right to revoke her
acceptance within a reasonable time once she discovered its value to her was impaired. Further,
Castro's testimony was clearly sufficient to meet her burden of proof to avoid a directed verdict.
C. Buyer's action for damages for nondelivery: market price recovery – difference between contract price and
D. Buyer’s action for damages for nondelivery – cover price recovery
CASE BRIEF: A. L. Schutzman Company, Inc. v. Nutsco, Inc.
2009 WL 5064052 (E.D. Wis. 2009)
FACTS: Schutzman is a Wisconsin corporation engaged in the business of selling roasted and salted nuts.
Nutsco is a New Jersey wholesaler of cashews that imports the nuts from an affiliated Brazilian
company and then packs and sells them in the United States.
In 2006, Nutsco used food broker Jim Warner to broker a contract between Nutsco and Schutzman
whereby Nutsco promised to deliver twelve 35,000 pound loads of super large, whole, first quality
(“SLW-1”) cashews. The contract also included an option allowing Schutzman to buy four loads of
large, whole, first quality (“LW-1”) cashews, if exercised by a certain date.
Though the original contract provided for only 12 loads of SLW-1 cashews, Schutzman later sought
259
260 Chapter 26
to increase that number. Warner amended the contract to add two additional loads. In March 2007,
Warner sent a copy of the revised Contract Confirmation adding the two extra loads (loads 13 and
14) to both Nutsco and Schutzman.
Nutsco delivered ten loads of SLW-1 cashews to Schutzman, with the last load being received on
November 9, 2007. After receiving the tenth load, however, Schutzman roast tested the cashews
and determined that they did not qualify as “first quality” under Association of Food Industries, Inc.'s
(AFI) specifications because of a high level of scorching. Nutsco represents to the market that if
they are going to sell SLW-1 cashews, the cashews will meet AFI standards for SLW-1's.
Schutzman notified Warner that the load was highly scorched and Jim Warner brought the
complaint and results of the roast test to Patricio Assis's (at Nutsco) attention. At Warner's request,
Schutzman provided six cases of cashews from the tenth load for evaluation by Nutsco. Nutsco did
not perform a roast test of the samples, but did conclude after its own analysis that the raw
cashews themselves did not meet AFI Specifications for first quality cashews.
Two months after Nutsco delivered the tenth load, in January 2008, Patricio Assis began arguing
that the parties' contract only provided for 12 loads of SLW-1 cashews and that Nutsco was not
responsible for providing the two additional loads added in March 2007. At this point in time, the
market prices for SLW-1 cashews were approximately $2 per pound higher than the price Nutsco
was to receive from Schutzman under their contract. ( Id.). Warner reported to Schutzman that Mr.
Assis was arguing that the parties did not have a signed contract covering the additional loads.
Warner acknowledged that Schutzman was within its rights in rejecting the tenth load, but tried to
persuade Schutzman to accept the load instead. Schutzman initially agreed to keep the load and
pay the contract price, on the condition that Nutsco deliver all remaining loads, including loads 13
and 14. Patricio Assis would not agree to this arrangement. Warner then attempted to circumvent
Patricio Assis and contacted Francisco Assis Neto directly. Jim Warner advised Mr. Neto in an
email that Schutzman would pay for the scorched tenth load, but wanted delivery of the five loads
of cashews remaining under the contract. The communication also stated that the parties would
await a reply and not take any action until they received a response. While waiting for a reply,
Schutzman stored the tenth load in its refrigerated warehouse.
On May 5, 2008, Jim Warner sent an email to Patricio Assis reminding him that Schutzman was
waiting for Nutsco to pick up the rejected tenth load of cashews and advising him to contact Mike
Kloth in Schutzman's shipping department. Mr. Assis contacted Mr. Kloth regarding pick-up. Due to
confusion with Schutzman's new buyer, Mr. Kloth wrongly informed Mr. Assis that Schutzman did
not possess a load of SLW-1 cashews waiting to be picked up by Nutsco. At a July 25, 2008,
meeting, Schutzman clarified that it did possess the load of cashews and Nutsco made
arrangements to retrieve it from the warehouse. However, Patricio Assis insisted on first personally
inspecting the load. Another month passed before Mr. Assis traveled to Wisconsin to conduct his
inspection. Mr. Assis finally inspected the load on September 3, 2008, and arranged to have the
load picked up on September 10, 2008.
Schutzman did not pay for the rejected tenth load of SLW-1 cashews that Nutsco retrieved in
September 2008. Schutzman did pay all invoices for the nine preceding loads it received and
accepted. Schutzman paid a reduced price on two of the invoices after Warner agreed that it could
apply $1,750 and $1,284 in credit against these invoices.
In addition to the amounts it paid to Nutsco for delivery of the nine accepted loads, Schutzman also
paid to purchase loads of SLW-1 cashews from other wholesalers. Schutzman purchased five loads
to replace the remaining loads it had expected Nutsco to provide under their contract. Schutzman
paid $5.45 per pound for these loads, or $367,850 more for the five loads than it would have paid
under the contract with Nutsco. Schutzman filed suit for this amount as its claim of damages.
ISSUE: Was there a contract for 14 shipments? Was there a breach with the shipment of the tenth
defective load? Was Schutzman entitled to damages for the cost of cover?
HOLDING AND
REASONING: The court held that there was a contract for shipment of 14 loads of cashews. The court also held
that Schutzman did not convert the below-par 10th load of cashews and that Schutzman was
E. Other types of damages
F. Action for breach of warranty
CASE BRIEF: General Mills Operations, LLC v. Five Star Custom Foods, LTD
789 F. Supp. 2d 1148 (D. Minn. 2011)
FACTS: General Mills Operations, LLC, purchased “Big Meatballs Cooked Italian,” used in General Mills'
Progresso Italian–Style Wedding Soup, from Five Star Custom Foods, Ltd.
General Mills sent purchase orders to Five Star the face of which states: “This purchase order
contract, along with General Mills' standard Purchase Order Terms and Conditions dated [1/29/04]
shall govern all terms and conditions of sale.... Shipment of the goods against this order constitutes
acceptance of terms and conditions dated [1/29/04] – otherwise do not ship.” The Purchase Order
Terms and Conditions were on the back of every purchase order, including the meatball orders
faxed to Five Star. General Mills also mailed a copy of the 2004 version of its Terms and Conditions
to Five Star's Customer Service Manager on February 4, 2004.
The Terms and Conditions included the following:
5. GOODS: The Goods shall conform in all respects to the description on the face of
this Order, and/or [General Mills'] then current specifications furnished to [Five Star].
The Goods ... shall be new, of first class commercial type ... This warranty is in
addition to and not in lieu of, any other warranties or guarantees made by [Five Star]
or created or implied as a matter of law.
25. COMPLIANCE WITH LAW: [Five Star]'s performance under this Order shall be in
compliance with all applicable federal, state, and local laws, ordinances, regulations,
rules and statutes (“Laws”).
27. RECALL: [General Mills] shall have the sole right, exercisable in its discretion, to
initiate and direct the content and scope of a recall, market withdrawal, stock
recovery, product correction and/or advisory safety communication regarding the
Goods.
Additionally, the purchase order states that “[t]he goods must conform to all current General Mills'
specifications as furnished to Seller.” General Mills mailed a copy of the ingredient specifications for
its meatballs to Five Star on January 18, 2006. Five Star acknowledges receipt of the
specifications, which included the following:
The Beef or Beef By-Product in this ingredient must be sourced from countries or regions
where USDA recognized BSE controls are in place in accordance with the
recommendations of the World Animal Health Organization.
One of Five Star's beef suppliers was Westland Meat Packing Company. Westland's beef was used
in two orders of meatballs supplied to General Mills. In February 2008, the Food Safety Inspection
Service (FSIS) issued a Class II recall of all products containing beef produced by Westland
between February 1, 2006, and February 15, 2008. The recall was due to Westland's supposed
failure to contact FSIS when it identified non-ambulatory disabled, or “downer,” cows that became
non-ambulatory after passing inspections but before slaughter. In such situations, regulations at the
time required the producer to notify FSIS and call a public-health veterinarian to conduct an
examination. Westland's alleged failure to consistently do this was deemed noncompliant, and the
261
262 Chapter 26
recall followed. There is no evidence, however, that any of the Westland beef supplied to Five Star
or incorporated into General Mills' meatballs came from downer cattle.
When Five Star learned of the recall, it traced the Westland beef that it had incorporated into its
products and notified General Mills of the recall on February 8, 2008, and identified two purchase
orders of meatballs, totaling 32,460 pounds, which contained Westland beef.
General Mills was required to identify and destroy all soup containing the recalled meatballs in its
inventory, as well as soup that it had already sold to grocery stores and other customers. The
recall cost General Mills more than one million dollars.
General Mills filed suit in January 2010, asserting claims for breach of contract, breach of express
warranties, breach of the implied warranty of merchantability, breach of the implied warranty of
fitness for a particular purpose, and negligence. Five Star filed a Third–Party Complaint asserting
claims against Cattleman's Choice, Inc. d/b/a Westland. Both General Mills and Five Star have
moved for summary judgment.
ISSUES: Was there a breach of warranty by Five Star? Was there a breach of contract? Is General Mills
entitled to damages?
HOLDING AND
REASONING: (1) there was no evidence of an actual manifestation of any defect in the meatball product as
required to prove breach of express or implied warranties; but (2) supplier breached contract with
manufacturer, since it failed to receive the benefit of its bargain; (3) supplier was on notice of terms
3. Notice of third-party action against buyer – example: patent infringement
G. Cancellation by buyer
H. Buyer’s resale of goods – buyer’s security interest to protect claim against seller
I. Action for conversion or recovery of goods: specific performance
J. Nonsale remedies of the buyer
DISCUSSION POINTS: Ethical Issues
The 30-Day Grace Period That is Now 120 Days
The ethical issues are that large companies are forcing smaller companies to absorb their cash flow costs, and the
costs to those small vendors is often higher than what P & G and others can negotiate. The float they receive
increases the cost to their vendors. The buyer companies have the benefit of an additional 120 days with the cash
262
that would ordinarily have gone out to their suppliers. Someone must absorb the costs. The buyers do not want to
pay more and one part of the supply chain will be required to absorb it. Notice also that consumers are expected to
pay in a much shorter time frame – on sales immediately, on ongoing accounts, within 30 days.
IV. What are the Contract Provisions the Parties Can Agree to as Remedies?
A. Limitation of damages
1. Liquidation of damages
It is important that you create an example here to refresh the recollection of those students who have
forgotten how a liquidated damages provision works. Consider the failure of a seller to deliver an
CASE BRIEF: Rodriguez v. Learjet, Inc.
946 P. 2d 1010 (Kan. App. 1997)
FACTS: Miguel Diaz Rodriguez contracted to buy a Learjet for $3,000,000. He made a $250,000 deposit,
and had payments due periodically on the jet. Diaz made no payments and Learjet demanded
payment or it would exercise the liquidated damages clause, which meant Diaz would lose the
$250,000 deposit.
Diaz made no payments and Learjet sold the jet to Circus Circus for a profit greater than that on the
Diaz contract. Diaz sued to get his $250,000 back. The district court granted summary judgment,
but an appeal was remanded for a determination of reasonableness of the damages. The court
upheld the reasonableness and Diaz appealed.
ISSUE: Was the $250,000 liquidated damages clause on a $3,000,000 contract reasonable?
REASONING: The amount was not grossly disproportionate and was related to Learjet’s actual damages.
DISCUSSION POINTS: Have the students discuss the validity of a liquidation of damages clause in a contract
using the Rodriguez v. Learjet, Inc. case.
2. Exclusion of damages
B. Down payments and deposits – damages: 20 percent of the purchase price or $500, whichever is smaller
C. Limitation of remedies – repair or replacement or return
D. Waiver of defenses – possible
E. Preservation of defenses
V. What are the Remedies for Buyers and Sellers in the International Sale of Goods?
263
264 Chapter 26
DISCUSSION POINTS: E-Commerce & Cyberlaw
Click “Like,” Waive Your Remedies
The new limitation came as a result of a case in which a judge refused to recognize General Mills general policy of
taking all consumer cases to arbitration. More food companies are expected to follow. Whether it is valid online
depends upon whether consumers are aware PRIOR to entry in the contest, downloading the coupons, or clicking the
“like” icon. The most difficult one to establish will be the “like” one – the others can be done in a fairly straightforward
way.
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Statute of limitations. Firwood's resale may have taken three years, and the contract goods may have been sold
as parts, but Firwood acted in good faith in trying to mitigate damages because there simply was no market for
PCIs at the time of General Tire's breach. Firwood acted in good faith and pursued buyers diligently over that
2. Revocation of acceptance. Gast has attempted to revoke acceptance. Gast can do so if the mechanical
problems substantially impairs the value of the car. That Gast has a bank note does not have any impact on his
3. Rejection of improper tender. Yes. Formetal immediately notified Presto of the defects. Presto had the right to
4. Seller breach through defective products. The sorority rejected the sweaters within a reasonable time after
delivery and notified the seller. The seller breached the contract. The sorority is entitled to cancel the contract,
recover the amounts it paid, and hold the sweaters until recovery. The sweaters were altered without
The sorority is entitled to a full refund of its deposit and any additional damages it experienced in defending this
5. Types of remedies – sellers. Yes, McNeely is correct. Wagner must choose between remedy for
6. Consequential damages; remedies. The issue for this Court is who breached the contract of sale between these
two merchants. To make that determination it is necessary to determine the terms of the contract. Especially
The final question concerning liability is who was at fault for this delay. The Court determines the fault was that of
Hakim Plast is entitled to their out of pocket expenses as a measure of damages. In addition, Hakim Plast would
be entitled to consequential damages, because it has shown the limitation on consequential damages in the
264
7. Damages; remedies of buyer. The judgment of the lower court is affirmed. A buyer can collect both incidental
and consequential damages. Incidental expenses here included renting a vehicle to get to work. The buyer here
8. Breach of contract. Mrs. Kirby could reject the wheelchair and sue for breach of contract. She might also try
breach of warranty in that it did not meet specifications and perhaps there was a warranty for a particular
9. Limitation of remedies under Article 2. The quoted clause was sufficiently specific to communicate the intention
10. Distinction between liability for fraud and liability for breach of warranty. No. The seller knowingly sold the
The code does not alter or affect preexisting rules of law relating to fraud. (See UCC § 1-103). [McInnis v.
11. Consequential damages. The jury awarded Elmore $25,000 which was about $5,000 less than he asked for, but
the court held that was in the jury’s discretion because, for example, they might have seen him able to work
12. Liquidated damages. The lower court dismissed the case because it held that Stock Solution had not
established that the liquidated damage clause was reasonable. Stock Solution appealed. The court noted:
In addition to the assignment of error discussed above, Stock Solution also argues on appeal that the
In Reliance Insurance Co. v. Utah Department of Transportation, 858 P.2d 1363 (Utah 1993), this court
enunciated the test for determining the validity of a liquidated damages clause:
"(1) [A]n agreement, made in advance of breach fixing the damages therefore, is not
(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is
(b) the harm that is caused by the breach is one that is incapable or very difficult of
The court held that it was not Stock Solution’s burden of proof to show that the liquidated damage clause was
The contract is not a sale, but a lease/bailment and is governed by common law. The liquidated damage clause
gives Stock Solution the right to collect all of these amounts, however, perhaps the ethical issue is revisiting
13. Damage limitations. The court held that the damage limitation was reasonable and enforceable. The court
14. Consequential damages. The damages for breach of warranty (in this case, the breach of the warranty of title)
are the difference between the value of the goods as they are and their value had they been as warranted. The
265
266 Chapter 26
15. Action for a specific performance. The court will grant specific performance in this case. The machine was
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
266
