Uniform Commercial Code - Essay Example

Order No: 185537 Uniform Commercial Article 2 Proposal On The Remedies under the Uniform Commercial A Critical Analysis of the Status of Sellers and Buyers Prepared by DR. ZULFIQUAR AHMED ID: 10131 Order No: 185537 09 October 2007 The Remedies under the Uniform Commercial Code: A Critical Analysis of the Status of Sellers and Buyers Introduction In the United States, the remedies of buyers and sellers of goods are governed by the Article 2 of Uniform Commercial Code (UCC) as it has been adopted with variations from state to state. Article 2 of Uniform Commercial Code (UCC) prescribes for common law and equitable remedies for breach of contract such as, expectation damages; restitution; reliance damages; and specific performance. Contracts for the sale of goods under Article II of the Uniform Commercial Code has given buyer's and sellers' remedies in following ways: remedies available to buyer when he has not accepted the goods; remedies available to buyer after he has accepted the goods, including remedies for breach of warranty; remedies available to seller when buyer defaults and has not accepted the goods; and remedies available to seller after buyer has accepted the goods. Some contractual control over remedy is developed by the Article II of the Uniform Commercial Code, i.e., liquidated damages clauses; and contractual modification or limitation of remedy under UCC 2-719. Some remedies have been promoted for mistake and unconscionability as like, mistake in the formation of an agreement - the recession and restitution remedies; mistake in integration or expression - the reformation remedy; mistake in performance of an obligation - the restitution remedy; and unconscionability. Remedies for the Breach of Contract for Sales If one of the parties to sale fails to perform the contract duties, the law makes several remedies available to the other party (Anderson; 1980:372). Remedies for the aggrieved seller are listed in the Uniform of Commercial Code 2-703 and 2-711 gives the basic buyer's remedies. The underlying doctrine for Code remedies is contained in section 1-106,1 which restates "the common-law theory of contract damages."2 Remedies under the Code are designed to protect the expectation interest of the party not in breach,3 and to provide "just compensation for the loss." 4 The focus of the Code's remedial structure is on the anticipated future result if a party in breach has fully performed.5 Remedies under the Code are found in several sections, depending on who the breaching party is and at what point in the transaction breach occurs.6 The Article 2 concept that usually dictates which of these two remedial schemes will apply is "acceptance." If a buyer receives and continues to "accept" the goods, the exchange will normally be completed despite a breach.7 Thus, except in rare circumstances, a buyer can retain accepted goods and a seller is entitled to the price for accepted goods.8 Seller's Remedies under UCC When contract for sale is breached by the buyer, the seller has a number of remedies available. Among the seller's remedies under the circumstances in 2-203 of the Uniform of Commercial Code, are the option to cancel, UCC 2-106(4), 2-703(f), or to withhold delivery, UCC 2-703(a).9 UCC 2-703 certify that where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (UCC 2-612), then also with respect to the whole undelivered balance, the aggrieved seller may following remedies: (a) withhold delivery of such goods; (b) stop delivery by any bailee as hereafter provided (UCC 2-705); (c) proceed under the next section respecting goods still unidentified to the contract; (d) resell and recover damages as hereafter provided (UCC 2-706); (e) recover damages for non-acceptance (UCC 2-708) or in a proper case the price (UCC 2-709); (f) cancel. Before given the above remedies to the seller, U.C.C. 2-702 provides that where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this Article (U.C.C. 2-702(1)). In recent years litigation involving stoppage of goods in transit by reason of the buyer's insolvency has been infrequent, since even the slowest method of transit today affords little time for such delivery.10 Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay (U.C.C. 2-702(2)). The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this Article (Section 2-403). Successful reclamation of goods excludes all other remedies with respect to them (U.C.C. 2-702(3)). 'The right of stoppage of delivery in transit is founded upon mercantile rules, and is borrowed from the custom of merchants; from that custom it has been engrafted upon the law of England. This doctrine was adopted by the court of Chancery, and afterwards adopted by the Courts of Common Law'.11 The seller may stop delivery of the goods to the buyer, without regard to the quantity involved, if the buyer is insolvent.12 The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (section 84-2-702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods (U.C.C. 2-705(1)). As against such buyer the seller may stop delivery until (a) receipt of the goods by the buyer (U.C.C. 2-705(2)a); or (b) acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer(U.C.C. 2-705(2)b); or (c) such acknowledgment to the buyer by a carrier by reshipment or as warehouseman(U.C.C. 2-705(2)c); or (d) negotiation to the buyer of any negotiable document of title covering the goods(U.C.C. 2-705(2)d). Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach (U.C.C. 2-706(1). Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell (U.C.C. 2-706(3). Such notice must also be given of a public sale unless the goods are perishable in nature or threaten to decline rapidly in value (U.C.C. 2-706(4)b). The Uniform Commercial Code as adopted in Kansas had the right to cancel the contract. When the buyer wrongfully rejects the goods, wrongfully revokes an acceptance of the goods, repudiates the contract, or fails to make a payment due on or before delivery, the seller may cancel the contract (Goldstein; 1972: 392).13 If an accepting buyer has breached, the seller's usual remedy is an action for the price plus incidental damages (U.C.C. 2-709(1)). It is not entirely clear whether an immaterial default by a buyer in a single delivery contract gives the seller avoidance-type remedies under Article 2. For example, suppose the buyer was one day late in making a required pre-payment or in tendering the price in a cash sale, and the circumstances indicate that the delay did not materially effect the seller. Can the seller, under 2-703, cancel the contract and sue for resale or market-price damages because the buyer has failed "to make a payment due on or before delivery" Although Article 2 says nothing about the materiality of a buyer's non-repudiation breach in a single delivery contract, and although the material breach standard in 2-612(3) on installment contracts may imply that there is no such standard in single delivery contracts, at least one court has imposed a material breach standard for any cancellation by the seller.14 Buyer's Remedies under UCC Remedies for the aggrieved buyer are listed in 2-711 of the Uniform of Commercial Code. These include the right to buy a substitute product and have the seller pay for it (section 2-712), or to have the seller pay the buyer full market value (or the difference between the contract price and market value if the buyer hasn't paid the seller yet) ( 2-713). Applicable remedies following effective revocation are contained in section 2-711.15 The Uniform Commercial Code employs the terms repudiation, rejection and revocation of acceptance.16 A buyer has the option of cancelling.17 Regardless of whether a buyer does or does not cancel, however, the buyer is entitled to recover as much of the purchase price as has been paid.18 In addition, section 2-711 provides that a buyer may "cover" under section 2-712, and be entitled to the difference between the cost of the substituted goods and the contract price.19 If, however, a buyer chooses not to cover, then, in addition to the purchase price paid, the buyer may recover the difference between the market price and the contract price.20 A buyer is also able to recover any incidental and consequential damages that he or she can prove.21 The broad goal of section 2-608, therefore, in combination with other Code remedial provisions, is to meet an aggrieved party's expectation interest.22 When a seller tenders goods identified in a contract, and these goods are non-conforming, several options are available to the buyer.23 All of the goods may be accepted,24 all of the goods may be rejected,25 or any identifiable commercial unit or units may be accepted and the remainder may be rejected.26 If the goods or the tender made by the seller do not conform to the contract in any respect, the buyer may reject the goods (Anderson; 1980:376). Rejection is possible if the goods fail to conform in any respect to the relevant contract.27 Goods that have been accepted may not be subsequently rejected by the buyer.28 Under certain conditions, a buyer who has accepted non-conforming goods may still retract or revoke acceptance and recover damages as if the goods had been rejected.29 If the conditions for revocation of acceptance cannot be met and the goods are defective, the buyer may have an action for breach of warranty.30 In such an instance, however, the buyer is still obligated to pay the contract price.31 Damages for breach of warranty are limited to the difference between the value of the goods as accepted, and the value they would have had "if they had been as warranted," unless circumstances otherwise dictate.32 Rejection and revocation of acceptance are significant remedies for a buyer because either action allows a buyer to foist defective goods back upon the seller, freeing a buyer from his or her obligation to pay the price, and allowing the buyer to recover any paid portion of the sale price.33 Acceptance is the critical time in deciding whether a buyer's action with respect to the non-conforming goods constitutes rejection or revocation of acceptance.34 Rejection is available only to a buyer who has not accepted goods.35 Goods may be rejected upon delivery if they fail in any manner to conform to the relevant contract.36 Although section 2-601 of the Code purports to reflect the perfect tender rule,37 in reality, other provisions of the Code place restrictions on a buyer's ability to reject.38 To be effective, rejection must occur within a reasonable time after delivery, and the seller must be notified of the rejection.39 When the goods tendered consist of different units some of which conform to the contract, the buyer has the choice of (a) rejecting the entire quantity tendered; (b) accepting the entire tender; or (c) accepting any one or more commercial units and rejecting the rest (Anderson, 1980:376). Revocation, by definition, occurs after acceptance.40 The buyer may revoke acceptenace of the goods when they do not conform to the contract to such an extent that the defect substantially impairs the value of the contract to the buyer (Anderson, 1980:377).Once a buyer has had a reasonable opportunity to inspect the goods and indicates to the seller that they are either conforming or non-conforming, but that he or she will retain them, the buyer is considered to have accepted the goods.41 The elements of an effective revocation of acceptance are: a buyer's ability to show that the value of the goods was substantially impaired by defects;42 the defects were hidden or acceptance was based on the seller's assurance that the non-conformity would be cured; and notice to the seller was provided within a reasonable time after the defects were discovered.43 Revocation of acceptance must occur before there is a substantial change to the condition of the goods not caused by the defects in the goods.44 Several courts have justified continued use of goods by a buyer as necessary in order to protect a buyer's security interest.45 Many of the cases raising the issue of revocation do so in the context of purchases by consumers,46 often involving an item such as a mobile home or a car.47 In determining whether a buyer's continued use would negate a revocation of acceptance, many courts have considered whether the use was reasonable.48 Consequently, standards for assessing reasonableness are developing. Additionally, a few courts, such as the Supreme Judicial Court of Massachusetts in Fortin v. Ox-Bow Marina,49 have allowed the buyer who has revoked acceptance to recover the sales tax that was paid on the goods. Conclusion The primary purpose of the Uniform Commercial Code is to facilitate "the expansion of commercial practices."50 This is achieved through specific provisions of the Code,51 as well as section 1-103, which provides that the Code is to be supplemented by principles of law and equity.52 Generally speaking, the Uniform Commercial Code determines the rights and remedies of buyers and sellers. It is statutory authority that, for example, provides the remedy for a seller's breach and that allows a buyer to "revoke acceptance" (in other words, undo the deal) of a product against the seller. The benefits behind the Uniform Commercial Code include the ability to state a claim against the seller (e.g., revocation of acceptance) that you often couldn't state against a remote manufacturer or warrantor. Seller may cancel the contract, take appropriate action as to the goods, withhold delivery of the goods, stop delivery of the goods by a bailee, proceed under 2--704: to identify goods to the contract, recover monies from buyer in the alternative per sections 2-706, 2-708, or 2-709, resell and recover damages, recover damages for non-acceptance or repudiation, recover the price, and absolutely seller's remedies have on discovery of buyer's insolvency. Besides seller's remedies, the buyer's have remedies in case of breach when buyer has not accepted the goods, in case of where buyer has justifiably revoked acceptance of the goods, and in case of where buyer has finally accepted the goods. In the above cases, buyer may cancel the contract, recover price paid, recover of money damages, cover' and recover damages, recover damages for non-delivery or repudiation. Various cases filed and settle down by the USA supreme court and federal courts, some of them are discussed in this paper indicating that courts are willing to allow revocation of acceptance, despite even significant periods of use. This proposal shows how the Uniform Commercial Code and courts have addressed the issue of remedies of buyers and sellers who are engaged as principal the parties of the contract for the sale of goods. Further, it encloses recommendations for revisions to Article 2 that would provide clearer guidance for the remedies of buyers and sellers. After all, the proposal presents a comprehensive treatment of buyers and sellers' remedies in case of sale of goods. Subjects include common law and equitable remedies for breach of contract such as expectation and reliance damages, restitution, and specific performance with special discussion of contracts for the sale of goods, as well as buyers' and sellers' remedies under Article 2 of the UCC. Bibliography Books Anderson, A. Ronald. (1980). Business Law. (11 ed. South-Western Publishing Co.; Dallas. 1980). ___________________. (1981). Anderson on the Uniform Commercial Code. (3d ed. 1981). Anderson, R. Roy. (1992) Damages Under the Uniform Commercial Code 3:13 (1992). Corman, W. Calvin. (1976). Commercial Law: Cases and Materials. (4th ed. Little, Brown and Company; USA. 1976) E. Allan Farnsworth, Contracts 8.12, at 621 (2d ed. 1990). Friedman M. Jane. (1981). Friedman's Contract Remedies in a Nutshell (Nutshell Series). West Law Book. Hawkland, D. William. Uniform Commercial Code Series. 2-608:02, at 128-29 (1994). James J. White & Robert S. Summers, Uniform Commercial Code, 8-1 (4th ed. 1995). National Conference of Commissioners on Uniform State Laws. (2007). Ed. Uniform Commercial Code. 2007. West Publishing. Stone, Bradford. (2001). Uniform Commercial Code in a Nutshell (Nutshell Series). (US- 5TH Ed.; West Group). Summers, J. James. And White & S. Robert. Uniform Commercial Code, 8-1 (4th ed. 1995). Farnsworth, E. Allan.(1990). Contracts. 8.12, (2d ed. 1990). The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, 15 U.S.C. 2301-2312 (1994). William D. Hawkland, Uniform Commercial Code Series 2-608:02, at 128-29 (1994). Articles Anderson A. Ronald. "Title And Risk In Sales Under The Uniform Commercial Code" American Business Law Journal, Volume 1, Issue 1, Page 84-91, Mar 1963. Gary Monserud, "Rounding Out the Remedial Structure of Article 2: The Case for a Forced Exchange Between a Buyer and a Remote Seller", 19 U. Dayton L. Rev. 353, 400 (1994). George I. Wallach, "The Buyer's Right to Return Unsatisfactory Goods--The Uniform Commercial Code Remedies of Rejection and Revocation of Acceptance", 20 Washburn L.J. 20, 21 (1980). George L. Priest, "Breach and Remedy for the Tender of Nonconforming Goods Under the Uniform Commercial Code: An Economic Approach", 91 Harv. L. Rev. 960 (1978). Goldberg S. Alan. (1965). "Uniform Commercial Code Annotations, SECTION 2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods, Hays X. Francis. "Anatomy of the Uniform Commercial Code", American Business Law Journal, Volume 8, Issue 1, Page 69-70, Mar 1970. J. H. A. (1961). Unconscionable Contracts under the Uniform Commercial Code. University of Pennsylvania Law Review, Vol. 109, No. 3 (Jan., 1961), pp. 401-421 Monserud, "Rounding Out the Remedial Structure of Article 2: The Case for a Forced Exchange Between a Buyer and a Remote Seller", 19 U. Dayton Law Review 353, 400 (1994). Richard L. Coffinberger & Linda B. Samuels, "Legislative Responses to the Plight of New Car Purchasers", 18 UCC L.J. 168, 176 (1985). Roy R. Anderson, "Monetary Recoveries for Reliance and in Restitution Under Article 2 of the UCC", 22 UCC L.J. 248, 249 (1990); Roy R. Anderson, "Monetary Recoveries for Reliance and in Restitution Under Article 2 of the UCC", 22 UCC L.J. 248, 249 (1990) Verlin R. Jerome. (1964). "Contract Draftsmanship under Article Two of the Uniform Commercial Code", University of Pennsylvania Law Review, Vol. 112, No. 4 (Feb., 1964), pp. 564-600 Wallach, I. George. "The Buyer's Right to Return Unsatisfactory Goods--The Uniform Commercial Code Remedies of Rejection and Revocation of Acceptance", 20 Washburn L.J. 20, 21 (1980). Cases Erling v. Homera, Inc., 298 N.W.2d 478, 483 (N.D. 1980). Fortin v. Ox-Bow Marina, 408 Mass. 310, 322-23, 557 N.E.2d 1157, 1165 (1990). Gawlick v. American Builders Supply, Inc., 519 P.2d 313, 314-15 (N.M. Ct. App. 1974) Goldstein v. Stainless Processing Company, 465 F.2d 392, 394-395 (1972). Grandi v. LeSage", 399 P.2d 285 (N.M 1965), 7 B.C. L. REV. 103 (1965). Johannsen v. Minnesota Valley Ford Tractor Co., 304 N.W.2d 654 (Minn. 1981) Johnson v. GMC, Chevrolet Motors Div., 668 P.2d 139, 142 (Kan. 1983). Jorgensen v. Pressnall, 545 P.2d 1382, 1385 (Or. 1976). Keen v. Modern Trailer Sales, Inc., 578 P.2d 668, 670 (Colo. Ct. App. 1978) Kendal v. Marshal, 11 Q.B.D. 368. Lawrence v. Modern Mobile Homes, Inc., 562 S.W.2d 729 (Mo. Ct. App. 1978). Mobile Home Sales Management, Inc. v. Brown, 562 P.2d 1378 (Ariz. Ct. App. 1977). Nora Springs Coop. Co. v. Brandau, 247 N.W.2d 744 (Iowa 1976). Pavesi v. Ford Motor Co., 382 A.2d 954 (N.J. Super. Ct. Ch. Div. 1978), Ramirez v. Autosport, 440 A.2d 1345 (N.J. 1982). Stroh v. American Recreation & Mobile Home Corp., 530 P.2d 989 (Colo. Ct. App. 1975). Read More