14.4 Remedies under the UCC
2 min read•july 22, 2024
When a contract is breached, both buyers and sellers have remedies. Sellers can resell goods and recover damages, while buyers can by purchasing substitutes or seek . These remedies aim to make the injured party whole.
Limitations exist on contract remedies. Parties must mitigate damages by taking reasonable steps to minimize losses. Courts may also refuse to enforce unconscionable contracts or clauses that are unfairly one-sided.
Seller's Remedies for Buyer's Breach
Seller remedies for buyer's breach
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- allows seller to resell goods after buyer's breach must be done in good faith (honest intention) and commercially reasonable manner (standard practices in the industry) seller can then recover difference between resale price and original contract price
- Damages provide seller recovery for buyer's non-acceptance or repudiation measured by difference between market price at time and place for tender (delivery) and the unpaid contract price along with such as reasonable transportation or storage costs (warehousing fee)
Seller's right to cure
- Cure grants seller the right to rectify a non-conforming delivery within original contract time for performance or if time passed, within a further reasonable time after notifying buyer of intent to cure buyer must allow seller the opportunity to fix the non-conforming delivery (incorrect quantity or defective goods)
Buyer's Remedies for Seller's Breach
Buyer remedies for seller's breach
- Cover permits buyer to purchase substitute goods in good faith without unreasonable delay after seller's breach and recover difference between cover cost and contract price along with incidental (inspection fee) and (lost profits)
- Specific performance obtained through court order requiring seller's performance may be granted where goods are unique (custom machinery) or in other proper circumstances buyer has right of replevin (repossession) for goods identified to the contract if unable to cover after reasonable effort
Limitations on contract remedies
- Duty to mitigate damages requires aggrieved party to take reasonable steps (find alternate supplier) to minimize losses from breach failure to do so may reduce amount of recoverable damages
- Doctrine of allows court to refuse enforcement of contract or clause if deemed unconscionable at time of formation determined by examining parties' circumstances (education level), bargaining power disparity, oppressive terms (excessive price), and lack of meaningful choice (take-it-or-leave-it contract)
Key Terms to Review (15)
Consequential damages: Consequential damages refer to losses that are not directly caused by a breach of contract but are a result of the breach, occurring as a secondary consequence. These damages often stem from the specific circumstances of the injured party and can include lost profits or additional expenses incurred due to the breach. Understanding consequential damages is essential as they impact the overall calculation of damages and determine the extent of liability in contract disputes.
Cover: In the context of contract law, particularly under the UCC, 'cover' refers to a buyer's purchase of substitute goods in response to a seller's breach of contract. This concept is crucial as it allows buyers to mitigate their losses by obtaining goods similar to those initially agreed upon, ensuring that they can still meet their needs despite the seller's failure to deliver.
Expectation Damages: Expectation damages are a type of monetary compensation awarded to a party in a contract dispute, intended to put them in the position they would have been in had the contract been fulfilled. This measure of damages focuses on the expected benefits or profits that were anticipated from the contract, thus compensating the injured party for their loss. Understanding expectation damages is crucial as they relate to various concepts like third-party beneficiaries, mistakes in contracts, different types of damages, and remedies under the UCC.
Incidental damages: Incidental damages refer to the costs that are incurred as a result of a breach of contract, which are necessary to mitigate losses and are not related to the principal contract. These damages are typically secondary expenses that arise directly from the breach, such as costs for finding a substitute performance or expenses related to handling the breach. Understanding incidental damages is crucial because they help ensure that the injured party can recover costs that are directly tied to the breach, reinforcing the principle of making the injured party whole again.
Installment contracts: Installment contracts are agreements where the buyer agrees to make payments over time for goods or services, rather than paying the full price upfront. These contracts are common in transactions involving expensive items, allowing consumers to spread out their payments while taking possession of the item. They are governed by specific provisions under the UCC, which outline the rights and responsibilities of both parties in case of breach or default.
Liquidated damages: Liquidated damages are a pre-determined amount of money that parties agree upon in a contract as compensation for potential breaches, aiming to provide certainty and avoid disputes over actual damages. These clauses help clarify expectations for performance and outline specific penalties for failure to meet contractual obligations, which can impact how breaches are classified and addressed.
Material Breach: A material breach occurs when a party fails to perform a significant aspect of a contract, which undermines the contract's purpose and allows the other party to either seek remedies or terminate the agreement. This concept is vital in understanding how contracts are enforced and the implications of performance issues.
Mitigation of damages: Mitigation of damages is a legal principle requiring a party suffering loss due to a breach of contract to take reasonable steps to reduce or minimize their damages. This concept emphasizes that the injured party cannot simply sit back and let damages accumulate; instead, they must actively seek ways to lessen the impact of the breach. The idea is rooted in fairness and encourages responsible behavior in response to contract violations.
Output Contracts: Output contracts are agreements in which a seller agrees to sell their entire output of goods to a particular buyer, while the buyer agrees to purchase that output. These contracts provide a level of certainty for both parties regarding the quantity of goods to be delivered, which is crucial for planning and inventory management. The flexibility in the quantity allows the seller to adjust production based on demand, while also providing the buyer with assurance of supply.
Resale: Resale refers to the act of selling goods or property that have already been purchased, typically in the context of a commercial transaction. This concept is particularly relevant under the Uniform Commercial Code (UCC), which outlines specific remedies for buyers and sellers when a contract is breached, including the right to resell goods. Understanding resale is essential for addressing issues related to damages and recovery in sales contracts.
Right to cure: The right to cure is a legal concept that allows a party who has breached a contract the opportunity to rectify or fix the breach within a reasonable time before the non-breaching party can pursue damages or terminate the contract. This principle emphasizes the importance of giving sellers, particularly in commercial transactions, a chance to make things right and fulfill their contractual obligations, aligning with the idea of fairness and efficiency in contractual relationships.
Specific Performance: Specific performance is a legal remedy in contract law that compels a party to fulfill their obligations as agreed in the contract, rather than simply providing monetary damages. This remedy is typically applied when monetary compensation is inadequate to address the harm caused by a breach, especially in cases involving unique goods or properties. Its application intersects with various aspects of contract law, such as the conditions under which it can be sought, how breaches are classified, and the sources of law that govern contractual agreements.
UCC § 2-711: UCC § 2-711 is a provision in the Uniform Commercial Code that addresses the buyer's remedies when the seller fails to deliver goods or breaches the contract. This section outlines the rights of the buyer to recover damages and seek alternative solutions, ensuring that buyers are protected and can seek compensation when sellers do not fulfill their obligations under the contract.
UCC § 2-712: UCC § 2-712 outlines the buyer's right to cover in the event of a seller's breach of contract. It allows a buyer to procure substitute goods after a breach, enabling them to recover the difference between the cost of cover and the original contract price. This section is significant as it provides a remedy that protects buyers and encourages them to mitigate their losses.
Unconscionability: Unconscionability refers to a legal doctrine that prevents the enforcement of contracts that are deemed excessively unfair or oppressive, often due to an imbalance in power between the parties involved. This concept highlights the importance of fairness and equity in contractual agreements, particularly when one party exploits their superior position to impose harsh terms on the other. It can lead to contracts being voided or reformed if they are found to be unconscionable, reflecting a commitment to protecting vulnerable parties in the contracting process.