Sales Contracts – Breaches and Remedies

1

Sales Contracts – Breaches and Remedies
Flavia Ana Guez
Business Law for Managers
Prof. Maxine Mckenley
March, 2015

Sales Contracts – Breaches and Remedies

2

In a business environment, you may at times find yourself caged by circumstances. From time to time, you might have to make decisions that require breaching a contract. As a merchant, the Uniform Commercial Code governs the impact of the breach of your contract whether you are the seller or the buyer.
Seller`s remedies for breach of contract
If a buyer repudiates/ breaches a contract, the seller`s remedies and options are as follows: •
•
•
•
•

Withhold delivery of the goods
Stop delivery of goods in transit
Resell the goods and recover damages
Recover damages equal to the difference between the market price and the K price Cancel the contract

In a scenario where the seller chooses to resell the goods, the resale must be made in good faith and in a commercially reasonable manner. In this situation, the seller may recover the difference between the resale price and the contract price, together with any incidental damages, but less expenses saved as a result of the buyer’s breach. If the resale of the goods is done via a private sale, the seller must give the buyer reasonable notice of the intended sale. If a reasonable notice is not given to the buyer, the seller might be prevented from recovering under this remedy.
If the goods are not resold by the seller, the difference between the contract price and the market price under the contract can be collected. The seller can instead choose to collect it`s lost profit in the situation where the contract price/market price differential will not adequately compensate seller. This might occur if the goods are sold at a fixed price, and the original buyer's default causes the seller to lose out on an additional sale it could have made to another buyer.
Finally, if the goods cannot be resold at a reasonable price, the seller can collect the entire contract price. However, this remedy is less frequent and it is generally available only in specific situations where the goods were custom-made for the buyer, or where the market for goods has disappeared.

Buyer`s remedies for breach of contract
If a seller fails to complete his/her contractual duties and deliver goods or if the delivered goods are defective, the buyer can consider the contract breached and is entitled

Sales Contracts – Breaches and Remedies

3

to damages. However, a seller`s breach of contract entitles the buyer to recoup only its actual loss.
A buyer who never received the goods, rightfully rejected non-conforming goods, or justifiably revoked acceptance of the goods can invoke the following remedies:
•
•

•

Cancel the contract
Buy substitute goods ("cover"), and collect the difference between the contract price and the cost of the substitute goods. The buyer may also collect any incidental and consequential damages. The buyer's damages are reduced by any expenses saved by buyer