chapter 21 remedies for breach of sales contracts

CHAPTER 21

Remedies for Breach of Sales Contracts

Introduction• Agreements As To Remedies or Damages

– Liquidated Damages• By prior agreement• Not as a punishment

– Question 2 at end of chapter.

» Yes. The court held that damages should be awarded to Baker and based on the liquidated damages clause. Citing Section 2-718 of the UCC, it said that under Texas law, a liquidated damages clause will be enforced when the court finds (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the amount of liquidated damages is a reasonable forecast of just compensation. Here, in light of Timbuk-3’s unknown potential for fame, along with the inherent difficulty in determining the value of a piece of art and the uncertain long-term earning power of the photographs, $1,500 was not an unreasonable estimate of Baker’s actual damages. The court also noted that IRS was unable to present satisfactory evidence showing “actual” damage disproportionate to the claimed liquidated damages, and thus there was no basis for voiding them as a “penalty.” Baker v. International Record Syndicate, Inc., 812 S.W.2d 53 (Ct. App. Tex. 1991).

Introduction• Agreements As To Remedies or Damages

– Consequential Damages• May be limited by agreement if not unconscionable• Moore v. Coachman Industries, Inc., p.360

– Where a limited warranty limited a manufacturer’s liability to repair and replacement for a year or 15,000 miles and excluded consequential and incidental damages, the buyer was barred from recovering damages when the vehicle was destroyed by fire outside the warranty period due to defects.

• Question 3 at end of chapter.– Yes. Under section 2-719, consequential damages may be limited or excluded

unless the limitation or exclusion is unconscionable. Here no injury to the person of Lobianco is involved, so the limitation is not prima facie unconscionable. At the same time the loss is not commercial and the loss is not presumptively conscionable. In analyzing this situation, it was noted that the alarm company had assumed some responsibility—repairing the alarm system so that it would work—and Lobianco had assumed the risk of loss that the contract had left her with, a risk she could cover by insurance. Accordingly, the limitation of liability was not unconscionable—and was enforced against Lobianco. Lobianco v. Property Protection, Inc., 437 A.2d 417 (Super. Ct. Pa. 1981).

Introduction• Statute of Limitations

– Normally 4 years• Parties may limit to 1• For warranty covering future performance, breach begins

upon discovery• Question 4 at end of chapter

– Painter v. General Motors Corp.» Where an automobile covered by a three-year, $50,000 mile “bumper to bumper

”warranty” was destroyed in a fire fifteen months after deliver, a lawsuit filed more than four years after the delivery of the vehicle but less than four years after the fire was barred by the four-year statute of limitations in the UCC. The court held that the warranty in this case did not extend to future performance of the vehicle and thus the statute of limitations began to toll on the delivery of the vehicle.

– Example: Under the Code, a breach of warranty action for a warranty that extends to future performance accrues on the date the breach was discovered or should have been discovered. Here, because of the nature of insect infestation—that the insects might not appear until several years after infestation—the warranty extended to future performance. Here the infestation apparently occurred at delivery or shortly thereafter—and the insects did not appear until several years later. The statute of limitations did not begin to run until the insects were—or could have been—discovered. Parzek v. New England Log Homes, Inc., 460 N.Y.S.2d 698 (Sup. Ct. N.Y. 1983).

Introduction• Statute of Limitations

– Normally 4 years• Parties may limit to 1

• For warranty covering future performance, breach begins upon discovery

– Poli v. DaimlerChrysler Corp., p. 361• Where a seven-year, 70,000 mile warranty on the powertrain was purchased in 1993 along

with a new 1992 model automobile, the warranty constituted a warranty of future performance when defects surfaced in 1997 and 1998. The buyer’s cause of action did not occur when the car was delivered in 1993 but rather when the persistent problems occurred. Thus a lawsuit filed in 1998 was timely filed and was not barred by the four year statute of limitations in the UCC. Note how different the result is in this case because the warranty was determined to be one that related to the future performance of the goods. If the warranty related only to the condition of the automobile at the time it was delivered, then the defect and the buyer’s cause of action would have had to occur when the car was delivered. The buyer would have had to file his lawsuit within four years of that time, or it would have been barred by the statute of limitations. In this case the buyer did not become aware of the defect until more than four years after it had been delivered; however, the warranty provided that it was warranted for seven years or 70,000 miles and was in effect when the defect was discovered.

Seller’s Remedies

• Injured Seller- Buyer Refusal To Accept– Cancel Contract and Withhold Delivery

• Duty to Mitigate– Madsen v. Murrey & Sons Co., Inc., p. 363

» Where seller had largely completed assembly of 100 specially ordered pool tables when buyer repudiated the contract, seller did not proceed in a commercially reasonably manner when it dismantled the pool tables, used salvageable materials to make other tables, and used much of the material for firewood.

» Note that while a court will give the manufacturer of specially manufactured some room to make what it believes to be a reasonable effort to mitigate damages, here the court found that the seller’s actions were outside the bounds of reasonableness.

Seller’s Remedies• Injured Seller- Buyer Refusal To Accept

– Resell Goods• In Good Faith Reasonable Commercial Manner

– If so, entitled to recover difference in price

• May recover incidental damages (e.g. storage charges)

• Example: Mrs. Bechtel can claim that Pollack Furs must make an effort to resell the goods pursuant to Section 2-709(1)(B). She stands a good chance of winning on this argument. Even though the coat was specially made, it would probably not be so individualized so as to preclude resale. Furthermore, there is the possibility of someone buying the coat merely for the value of the fur. Therefore, Pollack Furs should be required to try to resell. S. Pollack, Inc. v. Bechtel, 8 UCC Rep. 1103 (Sup. Ct. Miss 1978)

• Question 7 at end of chapter.– Yes. Cohn was awarded $1,679.50 as damages. The resale was made in

good faith and in a commercially reasonable manner after giving notice of it to Fisher. Under these circumstances the seller is entitled to recover from the defaulting buyer the difference between the contract price and the resale price together with incidental damages. Cohn v. Fisher, 287 A.2d 222 (Super. Ct. N.J. 1972).

Seller’s Remedies• Injured Seller- Buyer Refusal To Accept

– Recover Purchase $• Where accepted, conformed, or lost under buyer’s risk

– Lost Profit• Difference Between Contract and Market Price

– Jewish Federation of Greater Des Moines v. Cedar Forrest Products Co., p. 365

» When the buyer cancelled a contract to manufacture a customized building, the seller was entitled to recover the profit it would have made from full performance of the contract even though it also had been able to resell some of the items it had acquired in anticipation of the contract for the same price as called for in the contract.

– Reclaim Goods

• Insolvent Buyer– Withhold Delivery

Buyer’s Remedies• Injured Buyer

– Cancel Contract & Recover Damages• Question 6 at end of chapter• Baker v. Burlington Coat Factory Warehouse

– Where the seller breached the warranty of merchantability by selling a coat that was not suitable for use and the buyer returned the coat to the seller, the buyer was entitled to a refund of the purchase price paid for the goods despite the fact the seller had a no cash refunds policy.

J a n O rtm a nUm e å

Fo rd o ns-fö rm e d ling


– Buy Other Goods (Covering) & Recover Damages

• KGB Harvesting Co. v. Fresh Network, p. 368

– Where the price of lettuce increased dramatically and the seller refused to fulfill its commitments to the buyer, the buyer was entitled to recoup as damages the difference between the cost of cover and the contract price, even though the buyer was able to recover some of the increased cost from its buyer.


– Extra Expense -Incidental/Consequential Damages• Difference Between Contract and Market Price

– Question 9 at end of chapter

» Yes. The court held that in order to recover any losses it may have sustained as a result of Certina’s breach, Migerobe had to show that Certina, at the time of contracting, had reason to know that such losses were possible and that the damages were proximately caused by the breach. Here, Certina knew that the watches were to be used as a loss leader. And, the historical data established the loss sustained by Migerobe when, as a result of Certina’s breach ,shortly before its planned advertisement, it did not have Certina watches to use as a loss leader. Migerobe, Inc. v. Certina USA, Inc., 924 F.2d 1330 (5th Cir. 1991).


– Lost Value• Jetpac Group, Ltd. V. Bostek, Inc., p.369

– Where the seller breached the contract by delivering defective goods, the seller was entitled to recover not only damages for breach of warranty but also consequential damages in the form of lost profits from prospective future re-sales of computers as well as incidental expenses incurred as a result of the seller’s breach of contract.


– Lost Value• Question 8 at end of chapter.

– The court awarded Barr the difference between the market value the yacht would have had if it had been as warranted and represented (which it found to be $93,700) and its market value at the time of sale (50 per cent of that or $46,850). It also warded Barr $1,531 for repairs necessary to bring the yacht up to being worth 50 percent of the value as warranted. Barr v. S-2 Yachts, Inc., 7 UCC Rep.2d 1431 (E.D. Va. 1988).


– Specific Performance -where unique• Question 10 at end of chapter.

– Yes. Schweber could get specific performance if he could show a breach of contract by Rallye Motors. Under the Code specific performance may be granted “where the goods are unique or in other proper circumstances.” Schweber v. Rallye Motors, Inc., 12 UCC Rep. 1154 (Sup. Ct. N.Y. 1973).

chapter 21 remedies for breach of sales contracts

Documents