UCC Remedies

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Remedies and Damages Under Article 2 of the UCC

• Basic principles carried over from the common
  law
• Compensate the nonbreaching party by putting that
  party in as good a position as that party would
  have been in, had the contract been fully
  performed
• Core concepts are symmetrical for nonbreaching
  buyer, nonbreaching seller
• Start with Difference between contract price
  and market price
• Take account of possibility of cover and resale
  (i.e., avoidable loss)
• Take account of incidental and consequential
  damages (particularly for nonbreaching seller)

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Remedies and Damages Under Article 2 of the UCC

• Structure of Buyers remedies
• 2-711 outlines the buyers remedies, where the
  seller breaches
• Cancellation of the contract
• Damages
• Specific performance of the contract

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Remedies and Damages Under Article 2 of the UCC
Cancellation by the Buyer Available if the seller
fails to deliver the goods, or repudiates the
contract (see 2-610, 2-611) OR if buyer
rightfully rejects the goods or revokes
acceptance (because goods fail to conform). A
buyer who cancels may recover any price already
paid PLUS damages measured according to the
market ( 2-713) or cover. ( 2-712) The
perfect tender rule. Rejection permitted if
the goods fail in any respect to conform. (
2-601) Acceptance by buyer ( 2-606) terminates
the right to reject. ( 2-607(2)) Acceptance
occurs typically via failure to make effective
rejection. ( 2-606(1)(b))
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Remedies and Damages Under Article 2 of the UCC
Cancellation by the Buyer Rejection must be made
within a reasonable period of time and requires
notice to the seller. ( 2-602(1)) Even if goods
are rejected rightfully, buyer cannot cancel if
seller cures the nonconformity. ( 2-508) Under
very limited circumstances (where nonconformity
is substantial, and goods have not deteriorated
except due to their own defect), buyer can revoke
acceptance and cancel the contract. ( 2-608)
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Remedies and Damages Under Article 2 of the UCC
Buyers Damages Under Article 2, remedies are
cumulative, so long as nonbreaching party is not
made better off via remedies than it would have
been made under the contract. IF goods have been
accepted, then buyers damages for breach by
seller (such as breach of warranty) are damages
under 2-714 (general damages) and 2-715
(incidental and consequential damages). IF goods
have not been accepted (seller failed to deliver,
seller repudiated, goods were rejected), the
buyers damages are measured either by the
difference between the market price and the
contract price ( 2-713) or by the cover
provision (the cost of purchasing substitute
goods) ( 2-712), plus incidental and
consequential damages under 2-715.
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Remedies and Damages Under Article 2 of the UCC
Specific Performance and Other Remedies Specific
performance is available to a nonbreaching buyer
under very limited circumstanceswhere the goods
are unique or in other proper circumstances.
( 2-716) Buyer may set off its damages against
the amount of the purchase price still due the
seller. ( 2-717) Right to enforce valid
liquidated damages provision of the contract. (
2-718(1))
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Remedies and Damages Under Article 2 of the UCC
Problem 11-2 (p. 901) Bing Industries is engaged
in the manufacturing and fabrication of parts and
components for the automotive industry. Last
August it ordered 98,195 pounds of high carbon
cold rolled steel from Southern Steel, Inc., for
use in the fabrication of springs used in the
assembly of automobile clutches. The purchase
order set forth the specifications of the steel,
which were critical because of the requirements
for manufacture of the springs. Southern
delivered the steel in coils to Bing on January
26 and 28. In accordance with its usual
practice, Bing checked the steel for dimensional
accuracy and chemical content and began partial
fabrication of the steel into blanks. It then
stored the blanks awaiting orders from its
customers. Recently Bing removed the pieces from
storage and resumed the fabrication process.
During this processing, Bing noticed that the
springs exhibited cracks and other failures.
Bing immediately gave notice of the problem to
Southern, which did extensive testing of the
steel. A dispute has developed Southern claims
that Bing improperly processed the steel, while
Bing contends that the steel was defective.
Because of the problem with the steel, Bing is
late on delivery of springs under a contract and
runs the risk of having the contract canceled.
Bing has sought your advice about how to proceed
legally. What advice would you give?
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Remedies and Damages Under Article 2 of the UCC
Problem 11-2 The practical issue Bing risks
being sued by its customer because the delivery
of springs is late. Bings interest in suing
Southern may be tempered by its need for steel
for springs. Southern may still be Bings best
source of supply. The legal issue What rights
and remedies does Bing have against
Southern? Breach Did Southern breach a warranty?
The question is whether the steel was defective
when supplied, not whether it is defective now.
( 2-601) Did the contract include valid
disclaimers of warranties ( 2-316) or
limitations of liability ( 2-719)? Entitlement
to remedy Acceptance of the goods To maximize
possible remedies, Bing should reject the goods
(but it may be too late, since rejection must
occur within a reasonable time under 2-606) or
argue that it is entitled to revoke acceptance
under under 2-608 (but Bing has partially
fabricated the steel). It may then cancel the
contract, and recover the purchase price paid, as
well as damages. If it hasnt done so, Bing
should give formal written notice of the breach
and state that it is exercising all of its rights
under the Code. Even if the steel has been
accepted and revocation of acceptance is not
permitted, Bing may have the right to pursue
damages from Southern, so long as Bing gives
notice of the breach within a reasonable time
after discovery of the breach. 2-607(3).
Bing may be entitled to withhold any payment
still owed to Southern and may set off its
damages against those amounts.
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Remedies and Damages Under Article 2 of the UCC
Problem 11-2 (p. 906) Cover and market damages
If Bing is able reject the Southern steel and
obtain substitute steel elsewhere, it can recover
the difference between the Southern price and the
cover price under 2-712 if it choose not to
cover, or cant comply with the requirements for
cover, it may recover the difference between the
Southern price and the market price of steel
under 2-713. Alternatively, if Bing accepted
the Southern steel, it can recover damages for
the defective goods under 2-714. Consequential
damages Bings major damages, aside from the
difference in value between conforming goods and
the delivered goods, are its potential lost
profits, which are consequential damages.
2-715 describes limits on consequential damages
2-715(2) limits consequential damages to loss
that could not be prevented by cover. Were
Bings lost profits within the contemplation of
Southern? Has Bing acted reasonably in
mitigating its damages? Could it find the steel
somewhere else? File suit or negotiate a
settlement? Does Southern have competitors?
Does Bing have a choice of suppliers? If Bing
can move its business elsewhere, and not damage
its own customer relationships (too much), then
perhaps it should sue first and negotiate second.
If Southern is Bings only or best supplier,
perhaps Bing should rattle its saber a bit before
resorting to a lawsuit.
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Remedies and Damages Under Article 2 of the UCC

• Structure of Sellers remedies
• 2-703 outlines the sellers where the buyer
  breaches
• Cancellation of the contract
• Damages, if the goods have not been accepted
• Specific performance of the contract (recovery
  of the contract price)

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Remedies and Damages Under Article 2 of the UCC
Cancellation by the Seller 2-703(f) allows the
seller to cancel the contract if the buyer
wrongfully rejects, wrongfully revokes
acceptance, fails to make a payment due, or
repudiates Damages may also be available
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Remedies and Damages Under Article 2 of the UCC

• Sellers Damages
• If the goods have NOT been accepted, the seller
  may recover damages in one of two ways
• Resale ( 2-706) Seller may resell the goods
  on the market and recover the difference between
  the resale price and the contract price. Resale
  must be in good faith, commercially reasonable
  (private or public sales permitted) and seller
  must give buyer prior notice unless the goods are
  perishable.
• Market price ( 2-708(1)) If the seller has
  not resold the goods, the seller may recover
  market damages.

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Remedies and Damages Under Article 2 of the UCC

• Recovery of the Purchase Price (Specific
  Performance)
• Applies in 3 situations ( 2-709)
• Where the goods have been accepted
• The goods have been lost or damaged within a
  commercially reasonable time after risk of loss
  passed to the buyer or
• The seller is unable to sell the goods after
  reasonable efforts
• If the seller is entitled to recover the price,
  the seller must deliver the goods to the buyer.

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Remedies and Damages Under Article 2 of the UCC
Problem 11-3 On July 1, Henry T. Johnson Food
Distributors, Inc. entered into a written
contract with McBride Farms to purchase 5,000
bushels of large peaches at 4 per bushel,
delivery to be made on or before August 15. At 9
a.m. on August 15, McBrides trucks pulled up at
the Johnson facility. Charlotte McBride gave an
invoice to the Johnson agent at the unloading
dock. She pointed out that the invoice showed
4800 bushels of large peaches and 200 bushels
of small peaches. (In the trade, small peaches
are not as marketable as large ones, selling to
buyers like Johnson Food for approximately 2 per
bushel.) She also noted that the invoice price
(19,000) had been adjusted by 400 to reflect
the small peaches. The agent said he would have
to check with the boss. He returned a few
minutes later to say that the peaches were
unacceptable and could not be unloaded. McBride
asked to talk with the boss, who told her that he
was sick and tired of farmers making
deliveries any way they wanted. He said that
McBride should have obtained approval first, not
just showed up with the small peaches. She
offered to leave only the large peaches, but he
refused and ordered her to leave. McBride
returned with the peaches to her farm, and left
them at the McBride Cannery, a subsidiary
operation that cans unmarketable peaches. On its
books, the Cannery recorded a credit of 5,000
for McBride Farms, treating the peaches as
costing 1 per bushel. Subsequently, the Cannery
completed canning the peaches its manufacturing
costs for doing so were 3,000. McBride has now
brought suit against Johnson Food Distributors
for breach of contract. Analyze McBrides rights
to recover damages.
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• Problem 11-3
• Did Johnson Food breach the contract? The
  perfect tender rule. ( 2-601)
• Exceptions to the perfect tender rulesellers
  right to cure nonconforming tender within time
  set for performance. ( 2-508)
• Does McBride have a course of dealing or usage
  of trade argument under 1-205 that permits
  tendering some amount of nonconforming peaches,
  with an adjustment in price?
• May McBride recover damages under 2-706
  (resale)?
• Assuming that Johnson Food breached note that
  McBride resold the peaches, so McBride would
  try to argue that damages should be calculated as
  the difference between the contract price
  (18,600) and the resale price (5,000).
• Was notice of this private sale given, or was
  it excused? 2-706(3), (4)
• Was the resale in good faith and commercially
  reasonable? (Resale was to a subsidiary, and for
  an accounting credit, not an actual resale price)
• May McBride recover damages under 2-708
  (market)? McBride would need to prove the market
  price on August 15.
• Does the 3,000 canning cost count as incidental
  damages under 2-710?

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• Grace buys a new gold watch from Ingrid for 750,
  delivery on Oct. 1. On Oct. 1, the market price
  is 600. Grace repudiates on Sept. 28.
• How much can Ingrid recover?

Answer 150, under UCC 2-708(1) (difference
between market price-750-and contract price-600)
Sellers remedies
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• Grace buys a new gold watch from Ingrid for 750,
  delivery on Oct. 1. On Oct. 1, the market price
  is 600. Grace repudiates on Sept. 28. Ingrid
  then sells the watch to Lauren, on Oct. 3, for
  575.
• How much can Ingrid recover?

Answer 150, under UCC 2-708(1), unless Ingrid
satisfied the conditions of UCC 2-706. If she
did, then she can recover 175.
Sellers remedies
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• Ingrid sells Grace a new gold watch for 750,
  delivery on Oct. 1. On Oct. 1, the market price
  is 600. Grace repudiates on Sept. 28. After
  Grace repudiates, Ingrid gives notice to Grace of
  Ingrids intention to resell the watch at her
  store on Oct. 3. Ingrid then sells to her cousin
  on Oct. 3 for 500. The market price on Oct. 3 is
  600. How much can Ingrid recover?

Answer 250 (UCC 2-706(1) if the sale was made
in good faith 150 (UCC 2-708) otherwise.
Sellers remedies
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• Ingrid sells Grace a new gold watch for 750,
  delivery on Oct. 1. Grace takes delivery of the
  watch on Oct. 1, but it is stolen from her home
  on Oct. 2. Grace refuses to pay Ingrid. Can
  Ingrid recover?

Answer Ingrid can recover 750, so long as risk
of loss passed to the buyer (UCC 2-709(1)(a))
Sellers remedies
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• Ingrid sells Grace a new gold watch, which
  has a standard price of 1,000, for 750.
• Grace resells it to Lauren for 1,050.
• Ingrid fails to deliver.
• How much can Grace recover?

Answer 250 (UCC 2-713), rather than 300.
Buyers remedies
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• Ingrid sells Grace her new gold watch for
  750, delivery on Oct. 1. The market price for
  the watch on Oct. 1 is 1,000, and Ingrid fails
  to deliver. Grace buys another similar watch on
  Oct. 5 for 1,200, after the price of gold has
  risen dramatically.
• How much can Grace recover?

Answer 450 (UCC 2-712, if cover was made
without unreasonable delay and in good faith)
250 (UCC 2-713, otherwise)
Buyers remedies
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• Ingrid sold and delivered a watch to Grace
  for 750. Grace unpacked it and put it on.
  After working for 24 hours, the watch failed. In
  fact, the watch has a defective part and requires
  an 85 repair, which will take 2 weeks. Assuming
  the defect is a breach of warranty, what can
  Grace recover from Ingrid?

Answer 85 (UCC 2-714(2), plus incidental
damages, if any, under UCC 2-715(1)
Buyers remedies