Intro to Remedies and Seller's Remedies Flashcards
What are the basic remedy provisions of the UCC?
The 2-700s of the UCC
What are the two parts of the 2-700s regarding remedies?
- Seller’s remedies when the buyer is in breach (§§2-703 to 2-710)
- Buyer’s remedies when the seller is in breach (§§2-711 to 2-717)
What is reclamation in the context of insolvency?
The action to forgo damages and try to get the goods back
What triggers reclamation under the UCC?
The insolvency of the seller
How is insolvency defined in the Bankruptcy Code?
Having more liabilities than assets
What is the equitable definition of insolvency?
Being unable to pay one’s debts as they matured
What is the key section of the UCC that discusses liquidated damages?
§2-718(1)
What must be proven for a liquidated damages clause to be upheld at common law?
The parties intended the figure to be compensatory and made a good faith attempt to pre-estimate damages
What change does §2-718(1) introduce regarding liquidated damages?
Validity is tested against the actual harm caused by the breach
What does Article 2A of the UCC say about liquidated damages?
It allows a formula to compute damages and drops references to unreasonably large clauses
What principle does §1-305(a) of the UCC state regarding remedies?
Remedies shall be liberally administered to put the aggrieved party in as good a position as if the other party had fully performed
What section measures a seller’s recovery of damages if the buyer has technically accepted the goods?
§2-709 (Action for the Price)
What happens if the buyer repudiates before delivery?
Damages are measured under §2-706 if the seller resells the goods
If no resale occurs after a buyer’s repudiation, what section measures damages?
§2-708
Fill in the blank: The seller’s remedies are described in §_____.
2-703
Fill in the blank: The buyer’s remedies are described in §_____.
2-711
True or False: The UCC allows for consequential or special damages in all cases.
False
Unaccepted Goods
Peace River Seed Co-Operative, Ltd v Proseeds Marketing Inc (2015)
Facts
Parties:
Peace River Seed Co-Operative, Ltd. (Plaintiff/Appellant) – A Canadian agricultural cooperative.
Proseeds Marketing, Inc. (Defendant/Respondent) – An Oregon-based company involved in grass seed marketing.
Background:
Peace River entered into a contract with Proseeds for the sale of Kentucky bluegrass seed.
The contract specified a fixed price and required Proseeds to purchase specific quantities over multiple years.
Proseeds failed to purchase the agreed-upon quantities, breaching the contract.
Peace River sued for breach of contract and sought damages based on the difference between the contract price and the market price.
The trial court awarded damages but calculated them based on the actual market price difference at the time of breach.
Issue on Appeal:
Whether Peace River was entitled to lost profits (consequential damages) or merely the difference between the contract and market price (general damages).
Issue
When a buyer breaches a sales contract, is the seller entitled to recover consequential damages (lost profits) in addition to the difference between the contract price and the market price, or is the seller limited to general damages under the Uniform Commercial Code (UCC)?
Rule
Under the UCC § 2-708, remedies for breach of contract include:
General damages: Difference between the contract price and the market price at the time of breach.
Consequential damages: Loss of profits or other damages that arise as a consequence of the breach, provided they are foreseeable and provable.
UCC § 2-708(2) specifically allows a seller to recover lost profits if the general damages do not fully compensate the seller.
Analysis
Peace River’s Argument:
Peace River argued that they were entitled to lost profits because Proseeds’ breach prevented them from making additional sales.
They contended that the market price calculation did not adequately compensate them for their losses.
Proseeds’ Defense:
Proseeds claimed that Peace River was only entitled to the difference between the contract price and the market price at the time of the breach.
They argued that Peace River did not sufficiently demonstrate lost profits as a direct consequence of the breach.
Court’s Reasoning:
The appellate court ruled that Peace River was entitled to recover lost profits under UCC § 2-708(2).
The court found that applying only the difference between the contract and market price did not fully compensate Peace River.
Since Peace River demonstrated that the breach prevented them from making additional profitable sales, they were entitled to consequential damages.
Conclusion
The court ruled in favor of Peace River Seed Co-Operative, concluding that they were entitled to consequential damages (lost profits) in addition to the general damages based on the market price difference.
The case clarified that sellers can recover lost profits under UCC § 2-708(2) when the standard market-price damages are insufficient.
✅ Key Takeaway:
This case is significant for reinforcing the availability of consequential damages in commercial sales contracts when the seller can demonstrate that the standard remedy does not make them whole.
Remedies on Insolvency
Ratchett Tools delivered a truckload of inventory to Madoff Hardware. The next day, Ratchett Tools read that Madoff Hardware had shut its doors, failed to pay its many creditors, and has few assets to go after. Can Ratchett get the inventory back? See §2-702(2). Would it help sellers to include a clause in their sales contract forms making buyers promise they had the wherewithal to pay for goods ordered? See §2-702(2). What if Ratchett learned of the financial distress before delivery? §2-702(1). What if Madoff Hardware files for bankruptcy? See 11 U.S.C. §546(c).
Insolvency Remedies
PROBLEM 80
A start-up microchip manufacturer, Wafer Treatment, Inc., submitted a bid to supply specialized chips to a computer maker, Big Aqua. The bid had attractive pricing and thorough technical specifications. Big Aqua, however, was skeptical of buying from a small company with little track record. To bolster its credibility and get the contract, Wafer Treatment agreed to a clause entitled “Boiling in Oil,” which specified that failure to deliver the promised chips on time would trigger forfeiture of a large sum on deposit, even if there were no damages. Sure enough, Wafer Treatment breached after its CEO quit to take up surfing. Is the Boiling in Oil clause enforceable? See §2-718.
Breaching Buyer’s Restitution
PROBLEM 81
The zoo officials for the Minerun (West Virginia) Zoo contracted to buy an elephant from the zoo in White Cliffs, Delaware. The terms of the deal were that the West Virginia zoo would deliver a black bear worth $300 as a down payment and pay $100 a month for 20 months, at the end of which time the Delaware zoo would deliver the elephant. The bear was tendered and accepted. The West Virginia zoo duly made its $100 payments for 15 months before it ran out of money and could pay no more. The West Virginia zoo comes to you. Can it recover the $1,500 it has paid? The bear? p. 384Look at §§2-718(2), 2-718(3), and 2-718(4). Assuming the bear was and is still worth $300, calculate the amount that the West Virginia zoo is likely to recover in a restitution action.
breaching buyer’s restitution
PROBLEM 82
Backslappers Auto Sales sold a new blue sports car to Dwane Diletante on credit. He accepted the car and drove it for a month. He then sent Backslappers a notice of revocation of acceptance and gave as his reason the recent repainting of his garage in a color that clashed with the blue car. The notice stated that Diletante had parked the car down the block from his home (away from the clashing garage) and that Backslappers should come and get it. Diletante also refused to make any more car payments. Three days p. 385after Backslappers received the notice, the car disappeared and has never been found. May the seller recover the price under §2-709? Who had the risk of loss? See §§2-608(1) and (3), 2-606(1), 2-510; note Official Comment 5 to §2-709. There is a good discussion of this problem in White & Summers §7-3. Would it make a difference if Diletante had rejected the goods for the same reason? Would a seller be entitled to recover the price if the market price for the goods had declined considerably after the delivery date? See Brewer v. J-Six Farms, 350 P.3d 420 (Okla. App. 2015).
Unaccepted Goods
PROBLEM 83
Lannie Light was the sole proprietor of Light’s Bulbs, a lighting fixtures business in Austin, Texas. She contracted to sell 80 neon light fixtures to Signs, Inc., a firm in San Antonio. The price was $1,500 “F.O.B. Austin,” and the shipment date was to be March 15. On March 5, Signs, Inc., phoned Light and told her that the deal was off, but Lannie refused to agree to a cancellation. She went to her warehouse and picked 80 of the fixtures from her large stock. Then she posted a notice on the bulletin board near the cash register in her store, stating that 80 of the fixtures would be sold to the person making the best offer. Carl Customer (who was always buying these types of items) saw the sign and offered Light $1,000 for the fixtures. Light sold Customer the goods and took payment. Now Light comes to you. She tells you that on March 5 the fixtures were selling on the open market at $800 for 80 and that on March 15 the price for 80 such fixtures was $900 in Austin and $800 in San Antonio. Answer these questions:
(a)Does the UCC permit Light to select goods from the warehouse after the buyer repudiates? See §2-704.
(b)Was the resale proper? See §2-706 and Official Comment 2.
(c)Suppose Signs, Inc. had no cash for the purchase price, but offered to take the light fixtures on credit, even offering to provide a motorcycle as collateral. Could Light sell the light fixtures to someone else at a lower price and recover damages? Star Funding, Inc. v. Vault Minerals, LLC, 2018 WL 1581685 (S.D.N.Y. 2018).
(d)If Light’s damages are measured under §2-708(1), what amount may she collect? What amount under §2-706?
(e)Does Light have the choice between the §2-706 (Resale) computation and the §2-708 (Repudiation) computation? See Official Comment 1 to p. 386§2-703; White & Summers §7-7. The next case deals with this issue in some detail.
Unaccepted Goods
PROBLEM 84
Fun in the Sun, Inc., sells swimming pools. Its president comes to your law office with this problem. A customer named Esther Swimmer ordered one of the standard above-ground pools, retailing for $2,000. The pool’s components are purchased by Fun in the Sun at a wholesale price of $800 and are assembled into the finished product. The assembly process costs the seller $400. Swimmer has now repudiated the contract, and Fun in the Sun p. 397wants to sue. The current market price is $2,000 for such a pool. Fun in the Sun is sure it can find another buyer at that price if it resells the pool. Does it have damages? How are they measured? See §2-708(2), along with Official Comment 2. See also White & Summers §§7-8 to 7-13.
The problem with sellers in Fun in the Sun’s position (sellers having an unlimited supply of goods) is that if the law forces them to measure damages under §2-706 or §2-708(1), they lose the profit they would have made from the sale to the second customer. A seller in such a position is called a lost volume seller. The drafters meant for §2-708(2) to rescue such a seller from this dilemma, but the actual mechanics of the operation of the section are not clear. The problem arises in part from the undefined phrase “profit (including reasonable overhead),” which contains accounting terms having no fixed legal meaning. For an analysis of their import, see Speidel & Clay, Seller’s Recovery of Overhead Under U.C.C. Section 2-708(2): Economic Cost Theory and Contract Remedial Policy, 57 Cornell L. Rev. 681 (1972). See also Scott, The Case for Market Damages: Revisiting the Lost Profits Puzzle, 57 U. Chi. L. Rev. 1155 (1990).
Unaccepted Goods
PROBLEM 86
Stern Oil entered into a ten-year Motor Fuel Supply Agreement with James Brown, which required Brown each year to purchase a certain amount of ExxonMobil branded fuel from Stern Oil for Brown’s two convenience stores. Brown breached the agreement and stopped purchasing fuel from Stern. As a result, Stern Oil did not receive profits from a 1.5 cent markup per gallon or a 1.25 percent discount from ExxonMobil. Brown conceded the 1.5 cent markup per gallon was duly awarded as lost profits, but argued that the lost discount was not recoverable as damages. Should it be? See §§1-305(a), 2-715(2), 1-103, 2-708(2); Stern Oil Co. v. Brown, 2018 S.D. 15, 908 N.W.2d 144 (2018).
Courts routinely hold that sellers are not entitled to consequential damages (but see §2-710, allowing sellers to recover incidental damages). For example, a seller was denied a recovery where lost sales due to buyer’s breach caused seller not to qualify for quantity discounts on other contracts with its own seller. Nobs Chemical, U.S.A., Inc. v. Koppers Co., Inc., 616 F.2d 212 (5th Cir. 1980). Section 1-305(a) provides that consequential damages may only be had “as specifically provided in [the Uniform Commercial Code] or by other rule of law.” In Article 2, §2-715(2) provides that buyers may receive consequential damages, but does not say so for sellers. White & Summers question cases like Nobs, arguing that consequential damages could be permitted on the theory that §1-103 incorporates general rules of contract law, which could qualify as a permissible “other rule of law” under §1-305(a). See White & Summers §7-16 at 345.
p. 404
The Stern Oil court did not reach the question. Rather, it distinguished cases like Nobs, holding the lost discount in the case before it (on which the Problem above is based) was recoverable because it was not consequential damages but direct damages, allowed by §2-710:
Thus, while it is true that lost profits may fall within the larger category of consequential damages, lost profits that flow directly from the contract itself are properly characterized as direct damages. They are damages that reflect a party’s loss of the benefit of the bargain from the agreement between the parties, not other economic harm caused by agreements collateral to the contract.
Stern Oil Co. v. Brown, 2018 S.D. 15, 908 N.W.2d 144, 153 (2018).
The remedies provided for the parties in a lease of goods by Article 2A have been slavishly copied from the corresponding provisions in Article 2. For the most part this does no harm, but the Article 2A equivalent to §2-709’s “Action for the Price” has generated a lot of discord. Read §2A-529, “Lessor’s Action for the Rent.”
Unaccepted Goods
PROBLEM 85
Milo Veep, sales agent for the Complex Computer Corporation (CCC), negotiated a contract whereby his company was to design and manufacture p. 403a special computer that would regulate the timing of subway trains for the City of Plantation, Mississippi. The price was $20,000 F.O.B. CCC’s plant in Atlanta, Georgia. When the computer was half completed, the City of Plantation underwent a change of administration, and the new city leaders decided to dump the subway renovations. They phoned CCC and canceled the computer order. Now Veep phones your law office for advice. To help in your decision, Veep states that as scrap the computer and its components are now worth $5,000. Veep has heard that three other cities have subway systems similar to Plantation’s, and if the computer is finished, they might be enticed to buy it at a price between $15,000 and $20,000. On the other hand, it will cost CCC $9,000 to complete the computer.
(a)Should CCC stop the manufacture of the computer and sell it for scrap or complete manufacture and then try to resell it? See §2-704(2) and its Official Comment 2.
(b)If CCC completes manufacture and then, after a good faith effort, is unable to find a new buyer for the computer, can it make Plantation pay for the finished product? See §2-709(1)(b); Official Comment 1 to §2-704.
Unaccepted Goods
PROBLEM 87
Lawyer Portia Moot decided to rent a computer from Machines Unlimited and use it in her office. The computer arrived, and Portia found it most satisfactory, but her struggling practice made it difficult for her to make the lease payments on time. After she had missed two payments in a row, Machines Unlimited sent a goon to her office to repossess the computer. Portia was not there at the time, but her loyal administrative assistant protested mightily when the goon grabbed the machine, at one point blocking the door with her body, but she was shoved aside and the computer was taken. The lease still had a year to run, with payments of $100 due each month. Machines Unlimited sued Portia for $1,200.
(a)Was Machines Unlimited’s repossession valid? See §2A-525. What remedy does Portia have if it was not?
(b)Assuming there was no problem with the repossession, is the lessor required to try to mitigate damages by re-leasing the machine? See §2A-529 and its Official Comment.
(c)Could the lessor avoid any possible duty to mitigate by so stipulating in the lease agreement? See §§1-302, 2A-503; Homer Kripke, Some Dissonant Notes About Article 2A, 39 Ala. L. Rev. 792, 795-96 (1988)
2-700
2-701
2-702
2-703
2-704
2-705
2-706
2-707
2-708
2-709
2-710
2-718
2-719
