Part 4- Sales, Chapter 22: Remedies for Breach of Sales Contracts, Doc 3

Buyer’s Remedies and Key Concepts Under the UCC When a seller breaches a contract, the Uniform Commercial Code (UCC) provides several remedies to the buyer. These remedies aim to compensate the buyer and put them in the position they would have been in if the contract had been performed. Below is an overview of these remedies, along with explanations of incidental and consequential damages. Buyer’s Remedies Under the UCC: 1. Right to Cover: o If the seller fails to deliver, the buyer may purchase substitute goods ("cover") and recover the difference between the contract price and the cover price [UCC 2-712]. o Example: If a buyer agrees to buy goods for $1,000 but must pay $1,200 for substitutes, they may recover $200 in cover damages, plus incidental damages. 2. Damages for Market Price Difference: o If the buyer does not or cannot cover, they may recover the difference between the contract price and the market price at the time of the breach [UCC 2-713]. o This is common when covering goods immediately isn’t possible. 3. Damages for Nonconforming Goods: o If the buyer accepts defective or nonconforming goods, they can recover damages equal to the difference in value between the goods received and what was promised [UCC 2-714]. 4. Specific Performance: o If the goods are unique (e.g., artwork or rare items) and cannot be obtained elsewhere, the buyer may seek specific performance, forcing the seller to fulfill the contract [UCC 2-716]. 5. Cancellation and Refund: o The buyer can cancel the contract and recover any payments already made if the seller's breach is material or if the buyer rightfully rejects or revokes acceptance of the goods [UCC 2-711]. Incidental and Consequential Damages: 1. Incidental Damages [UCC 2-715(1)]: o These are reasonable costs incurred as a direct result of the breach, including:  Expenses for inspecting, transporting, or storing defective goods. Costs of arranging and securing cover (purchasing substitute goods). o Example: If a buyer incurs shipping fees to return defective goods, those costs are incidental damages. 2. Consequential Damages [UCC 2-715(2)]: o These cover indirect losses that result from the breach, which the seller knew or should have known about at the time of the contract.  Examples:  Lost profits if the buyer cannot resell goods due to defects.  Losses stemming from the seller's failure to deliver goods critical to the buyer's operations. o Recoverability:  The buyer must prove that these damages were foreseeable at the time of contract formation.  Consequential damages are more likely in cases where the seller had specific knowledge of the buyer’s intended use.  Liquidated Damages and Enforcement:    Liquidated Damages refer to a predetermined sum agreed upon in the contract as compensation for breach [UCC 2-718]. The UCC enforces liquidated damages if: 1. They are reasonable in light of anticipated harm. 2. Actual damages would be difficult to prove. If the amount is deemed too high (penalty) or too low (unconscionable), it will not be enforced, and actual damages will apply. Case Example – KGM Harvesting Co. v. Fresh Network:   Facts: KGM breached by refusing to deliver lettuce at the contract price. Fresh Network covered by purchasing substitute lettuce at a higher price and sought damages for the price difference. Outcome: Fresh Network recovered the cover damages despite passing costs along to subsequent buyers, as UCC 2-712 ensures buyers are compensated for the seller's breach regardless of downstream cost recovery. Conclusion: The UCC provides buyers with flexible remedies to address various types of breaches. Buyers can recover incidental and consequential damages, pursue specific performance for unique goods, or recover damages based on cover or market price differences. The aim is to make the injured buyer whole, reflecting their expected position if the contract had been honored.