PCL 1L Contracts
Part I
Review
Perfect Tender Rule
If goods or their delivery fail to conform to the contract in any way, the buyer generally may:
- reject all;
- accept all; or
- accept any commercial units and reject the rest
Commercial Unit
A unit by which the commercial usage treats as a single whole which, if divided, materially diminishes its value.
I can't take two eggs out of the carton and return ten.
Right to Reject Cut Off by Acceptance
Remember that UCC acceptance is more than just taking delivery—there's a right to inspect for conformance. Right is cut off by:
- Indicates goods conform or will keep anyway
- Fails to reject or notify seller of rejection in a reasonable time
- Commits act inconsistent with seller's ownership
More on rejection
Rejections will not be evidence of a seller's breach if:
- Seller could have cured breach if notified
- Buyer refuses to provide seller with full written statement of defects [between merchants only]
After Rejection
- Buyer must hold goods with reasonable care
- merchants must follow reasonable instructions from seller
- When no instructions, arrangements to return, store, or resell. Associated expenses born by the seller
- If resold, expenses and commission
Revoking Acceptance
Limited right to revoke. Defect of goods that substantially diminishes value and:
- accept with reasonable belief defect would be cured, but is not; or
- defect was not immediately apparent; or
- seller made assurances that goods conformed
- Must be in a reasonable time from discovery of defect
- Must occur before any substantial change to the goods
Installment Contracts
Don't follow Perfect Tender Rule. Similar to substantial performance at common law.
Installment can only be rejected if nonconformance substantially impairs value of that installment and cannot be cured.
Considered a breach of contract only if the nonconformance substantially impairs value of the entire contract.
Seller's right to cure
If a buyer rejects and the time of performance is not yet due, the seller can give reasonable notice of intent to cure and make a new tender of conforming goods.
Cure past contract time
Generally no right. Allowed additional time when:
- trade custom or course of dealing led seller to believe the goods would be accepted (e.g. buyer usually accepts and allows cure)
- seller unaware of defect despite proper business conduct
barbri examples make these clear
Installment Contracts
Generally allow for defects to be cured.
Breach by Buyer
Seller can treat any of these as material breach
- refusal to accept conforming goods or rejection of conforming goods
- nonpayment
Part II
Damages and Remedies
Monetary Remedies (aka Damages)
Compensatory Damages
To put the non-breaching party in the position they would have been had there been no breach.
A plaintiff must show that: the breach caused the damages, the damages were foreseeable at the time of contract, that the damages are certain, and that they were unavoidable. (CFCU)
Compensatory Damages
- Expectation Damages (Benefit of the Bargain, AKA Standard Measure)
- Reliance Damages
- Consequential Damages
- Incidental Damages
Expectation Damages
Damages that put plaintiff in the place they would have been had the other party performed.
- D to paint treehouse for $500, breaches, P gets another party to paint for $600. P can get $100 from D expectation damages.
Reliance Damages
Damages that put plaintiff in the place they would have been had contract never been formed.
Usually when:
- Difficult or speculative to show expectation damages
- Detrimental reliance or promissory estoppel situations
Consequential Damages (special)
Damages reasonably foreseeable at the time of contract that reflect losses over and above expectation damages (typically lost profits). Plaintiff must show that breaching party knew or had reason to know of special circumstances.
"arising naturally … from such breach of contract itself" Hadley v. Baxendale 558 6th Edition
Consequential Damages
What are some possible reasons for this rule on Consequential Damages?
The notes after Hadley v. Baxendale are an excellent condemnation of capitalism, even if that's not what the editor intended.
Consequential Damages
Incidental Damages (UCC)
Reasonable expenses associated with goods rejected under the Perfect Tender Rule (e.g. storage, return shipping, reselling, etc.)
Certainty Rule
Damages must be certain and ascertainable, not speculative.
Punitive Damages
Generally not awarded. Where these has been tortious conduct by the other party (e.g. fraud, intentional or negligent misrepresentation, etc.) in conjunction with the contract, a party may sue in tort under those theories.
Nominal Damages
Breach, but no proven loss. Typically $1.00
Liquidated Damages
Expressly defined in the contract. The requirements for enforcement: the damages must have been difficult to estimate or ascertain at the time of formation; must have been a reasonable forecast of damages; must not function as a penalty.
Liquidated Notes
The reasonable test will compare actual damages of the breach at the time of formation to forecasted amount. Under the UCC can be compared to breach at the time of breach.
- May be recovered even if there are no damages.
- Elections of liquidated or actual damages.
Part III
Questions, then Cases.
Our cases this week
Hawkins v. McGee
Restatement 2d § 344 (p 22 in 6th Ed.)
Hadley v. Baxendale
Mader v. Stephenson
Rockingham County v. Luten Bridge Co.
Kvassay v. Murray
