Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 22
PERFORMANCE AND BREACH
OF SALES AND LEASE CONTRACTS
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 22.1—CRITICAL THINKING
LEGAL
How might the parties have avoided the dispute in this case? The seller in this case could
easily have avoided the dispute over transportation costs by providing an estimate of the
shipping costs to the buyer at the time of contracting. Obviously, shipping logs and materials to
build a log home is going to be expensive. The seller could have gotten an estimate of the
CASE 22.2—LEGAL REASONING QUESTIONS
1. According to the UCC, if delivered goods do not conform to a sales contract, how can
the buyer revoke acceptance? Under the UCC, acceptance of a lot or a commercial unit can
be revoked if a nonconformity substantially impairs the value of the lot or unit and acceptance
2 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
2. In this case, what was the dispute between the buyer and the seller? How did this
dispute end in litigation? In the Genesis case, Genesis Health Clubs, Inc., contracted with
LED Solar & Light Company to replace the lights in Genesis’s building for $82,271.50. When
problems arose with the lights, LED Solar offered to fix or replace them, or refund their price.
3. On what key point did the lower and appellate courts agree? Why? In the Genesis
case, the lower court concluded that Genesis Health Clubs, Inc., (the buyer) could not recover
the contract price that it sought because it had not effectively revoked acceptance of the goods
that LED Solar (the seller) delivered. The appellate court agreed.
Under the UCC, a buyer can cancel a contract for a sale of goods and recover the price
by justifiably revoking acceptance. To effectively revoke acceptance, a buyer must “relinquish
dominion over the goods.” This requires a buyer to return the goods or at least to stop using
them, unless the use is necessary to avoid substantial hardship. But that did not occur here—
the buyer did not return any of the goods after an initial shipment and continued to use them.
CHAPTER 22: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 3
CASE 22.3—CRITICAL THINKING
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that Fitl and Strek had included in their deal a 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
LEGAL ENVIRONMENT
What might a court award to a buyer who prevails in a dispute such as the one in this
case? Fitl paid Strek $17,750 for a 1952 Mickey Mantle Topps baseball card. In the suit against
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Acceptance
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.
2A. Substitution of carriers
The UCC allows the seller to substitute carriers if the carrier becomes unavailable or
3A. Doctrine
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
4A. Right to reject
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
4 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
If a contract specifies a particular carrier, then the shipper must use that carrier or
be in break 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
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Country Fruit Stand orders eighty cases of peaches from Downey Farms. Without
stating a reason, Downey delivers thirty cases instead of eighty, and delivers at the
wrong time. Does Country have the right to reject the shipment? Explain. Yes. A seller is
obligated to deliver goods in conformity with a contract in every detail. This is the perfect tender
2A. Brite Images agrees to sell Poster Planet five thousand posters of celebrities, to be
delivered on May 1. On April 1, Brite repudiates the contract. Poster Planet informs Brite
that it expects delivery. Can Poster Planet sue Brite without waiting until May 1? Why or
why not? Yes. When anticipatory repudiation occurs, a buyer (or lessee) can resort to any
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
22-1A. Anticipatory repudiation
CHAPTER 22: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 5
Hammer is correct. Moore’s refusal to deliver the car to Hammer on Friday, when Hammer
tendered the $8,500 to Moore, constituted a breach of their contract. Moore could have
22-2A. Remedies of the buyer or lessee
Lehor can use any of three remedies to get the parts from Beem:
(a) Because the parts are scarce, Lehor can seek, through an action in equity,
specific performance requiring Beem to transfer the parts to Lehor as contracted [UCC 2–
716(1)].
(b) Because the parts are identified to the contract and Lehor could not pur-
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
22–3A. SPOTLIGHT ON REVOCATION OF ACCEPTANCE—Remedies of the buyer
The court ruled that the Waddells reasonably revoked their acceptance of the RV. Wheeler’s
appealed to the Nevada Supreme Court, which affirmed this part of the lower court’s judgment.
Under UCC 2–608, a buyer can revoke acceptance if a good has a “nonconformity [that]
substantially impairs its value” and the buyer accepted the good on the understanding that the
seller would cure the nonconformity or the buyer was unaware of the nonconformity, which was
6 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
22–4A. The right to recover damages
No, Woodridge does not have a right to recover damages from STM. A buyer who has accepted
nonconforming goods may keep the goods and recover for any loss resulting in the ordinary
course of events. But the buyer must notify the seller of the breach within a reasonable time
after the defect is discovered. Failure to give notice of the defect to the seller precludes the
buyer from using the defect to justify rejection or to establish a breach when the seller could
have cured the defect if it had been stated seasonably.
22–5A . BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Nonconforming goods
Padma notified Universal Exports about its breach, so Padma has two ways to recover even
though it accepted the goods. Padma’s first option is to argue that it revoked its acceptance,
giving it the right to reject the goods. To revoke acceptance, Padma would have to show that (1)
22–6A . The right of rejection
No, CEME is not entitled to a full refund of the amount paid for the chicken. If goods fail to
conform to the contract in any respect, the buyer can normally reject them and recover as much
of the price as has been paid.
The buyer must exercise the right of rejection within a reasonable time and must notify
the seller in a timely fashion—a failure to do so precludes the buyer from using the defects to
establish a breach if the seller could have otherwise cured the defects. If a merchant buyer
CHAPTER 22: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 7
rejects the goods, he or she must follow the seller’s instructions with respect to the goods, or
store them or reship them to the seller. Of course, under any circumstances, the buyer cannot
keep the goods and receive a full refund of the amount paid.
22–7A . Remedies for breach
Reefpoint cannot rescind the contract and obtain a return of its $400, nor Is Forman entitled to
recover the difference between Reefpoint’s payment and the contract price.
Under the UCC, if a buyer rightfully rejects delivered but nonconforming goods, the
remedies available to the buyer include the right to rescind the contract. If the buyer keeps and
uses the goods, however, acceptance has occurred and rescission is no longer available as a
remedy. But damages are still available. When the goods delivered are not as promised, the
measure of damages equals the difference between the value of the goods as accepted and
their value if they had been delivered as promised.
8 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
CHAPTER 22: PERFORMANCE AND BREACH OF SALES AND LEASE CONTRACTS 9
22–8A. Remedies of the buyer or lessee
No, at this point the Morrises are not entitled to revoke their acceptance of the cabinets that IO
delivered. Under the UCC, acceptance of a lot or a commercial unit can be revoked if a
nonconformity substantially impairs the value of the lot or unit and acceptance was based on the
reasonable assumption that the nonconformity would be cured, and it has not been cured within
a reasonable period of time. One of the corollaries to this rule is, of course, that the seller must
be given a reasonable time within which to affect a cure.
Here, the Morrises contracted with IO to rebuild the kitchen in their home on the Gulf
22-9A. A QUESTION OF ETHICS—Revocation of acceptance
(a) Revocation of acceptance is the buyer’s refusal to keep delivered goods after they
have been accepted and the time for their rejection has expired. Under UCC 2–608, “a buyer
may revoke acceptance when (1) nonconformity substantially impairs the value of the goods to
the buyer; (2) the buyer revokes within a reasonable time based on difficulty in discovering
10 UNIT FOUR: DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS
(b) One possible ethical basis for a buyer’s right of revocation is the “fairness” of
allowing the buyer to recover for defects in goods that could not have been reasonably
discovered before the goods were accepted. It would be unjust to enforce a deal in which a
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
22–10A. Performance obligations
(a) Kodiak has the right to deliver the goods in five lots. Normally, goods must be ten-
(b) The doctrine of commercial impracticability extends only to problems that could not
