UCC Performance and Remedies

The parties often set out in their contracts the details of performance. These include price terms and terms of delivery—where the goods are to be delivered, when, and how. If the parties fail to list these terms, the rules studied in this chapter will determine the parties’ obligations: the parties may agree; if they do not, the UCC rules kick in as the default. In any event, the parties have an obligation to act in good faith.

Performance by the Seller

The Seller’s Duty in General

The general duty of the seller is this: to make a timely delivery of conforming goods. Md. Code Ann., Com. Law §§ 2-301, 2-309.

Analysis of the Seller’s Duty

Timing

By agreement or stipulation, the parties may fix the time when delivery is to be made by including statements in contracts such as “Delivery is due on or before July 8” or “The first of 12 installments is due on or before July 8.” Both statements are clear.

If the parties do not stipulate in their contract when delivery is to occur, the UCC fills the gap. Section 2- 309 of the UCC says, “The time for shipment or any other action under a contract if not provided for in this Article or agreed upon shall be a reasonable time.” Md.  Code Ann., Com. Law § 2-309. And what is a “reasonable time” is addressed by comment 1 to this section:  It thus turns on the criteria as to “reasonable time” and on good faith and commercial standards set forth in Sections 1-202, 1-203 and 2-103. It…depends on what constitutes acceptable commercial conduct in view of the nature, purposes and circumstances of the action to be taken. Id. at cmt. 1.

Delivery

The parties may agree as to how delivery shall be accomplished; if they do not, the UCC fills the gap. “Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.”  Md.  Code Ann., Com. Law § 2-307.

By Agreement

The parties may use any language they want to agree on delivery terms.

If There Is No Agreement

If the parties do not stipulate delivery terms or if their agreement is incomplete or merely formulaic, the UCC describes the seller’s obligations or gives meaning to the formulaic language. (Because form contracts are prevalent, formulaic language is customary.)  As we will cover in Title and Risk of Loss, title to goods shifts when the seller has completed delivery obligations under the contract.  The contract may be either a shipment contract, a destination contract, or a contract where the goods are not to be moved (being held by a bailee). In any case, unless otherwise agreed, the delivery must be at a reasonable time and the tender (the offer to make delivery) must be kept open for a reasonable time; the buyer must furnish facilities “reasonably suited to the receipt of the goods.” Md.  Code Ann., Com. Law § 2-503.

In a shipment contract, the seller has four duties: (1) to deliver the goods to a carrier; (2) to deliver the goods with a reasonable contract for their transportation; (3) to deliver them with proper documentation for the buyer; and (4) to promptly notify the buyer of the shipment. Md.  Code Ann., Com. Law § 2-504. The contract may set out the seller’s duties using customary abbreviations, and the UCC interprets those: “F.O.B [insert place where goods are to be shipped from]” means “free on board”—the seller must see to it that the goods are loaded on the vehicle of conveyance at the place of shipment. “F.A.S. [port of shipment inserted here]” means the seller must see to it that the goods are placed along the ship on the dock ready to be loaded. Md.  Code Ann., Com. Law § 2-319. Price terms include “C.I.F.,” which means the sale price includes the cost of the goods, insurance, and freight charges, and “C. & F.,” which means the sales price includes the cost of the goods at a cheaper unit price and freight but not insurance. Md.  Code Ann., Com. Law § 2-320. If it is clear from the contract that the seller is supposed to ship the goods (i.e., the buyer is not going to the seller’s place to get them) but not clear whether it is a shipment or a destination contract, the UCC presumes it is a shipment contract. Md.  Code Ann., Com. Law § 2-503(5).

If it is a destination contract, the seller has two duties: to get the goods to the destination at the buyer’s disposal and to provide appropriate documents of delivery. Md.  Code Ann., Com. Law § 2-503. The contract language could be “F.O.B. [place of destination inserted here],” which obligates the seller to deliver to that specific location; “ex-ship,” which obligates the seller to unload the goods from the vehicle of transportation at the agreed location (e.g., load the goods onto the dock); or it could be “no arrival, no sale,” where the seller is not liable for failure of the goods to arrive, unless she caused it. Md.  Code Ann., Com. Law §§ 2-319, 2-322, 2-324.

If the goods are in the possession of a bailee and are not to be moved—and the parties don’t stipulate otherwise—Section 2-503 says delivery is accomplished when the seller gives the buyer a negotiable document of title, or if none, when the bailee acknowledges the buyer’s right to take the goods. Md.  Code Ann., Com. Law § 2-503(4).  If nothing at all is said about delivery, the place for delivery is the seller’s place of business or his residence if he has no place of business. Md.  Code Ann., Com. Law § 2-308.

Conforming Goods

As always, the parties may put into the contract whatever they want about the goods as delivered. If they don’t, the UCC fills the gaps.

By Agreement

The parties may agree on what “conforming goods” means. An order will specify “large grade A eggs,” and that means something in the trade. Or an order might specify “20 gross 100-count boxes No. 8 × 3/8 × 32 Phillips flathead machine screws.” That is a screw with a designated diameter, length, number of threads per inch, and with a unique, cruciform head insert to take a particular kind of driver. The buyer might, for example, agree to purchase “seconds,” which are goods with some flaw, such as clothes with seams not sewed quite straight or foodstuffs past their pull date. The parties may also agree in the contract what happens if nonconforming goods are delivered.

If There Is No Agreement

If nothing is said in the contract about what quality of goods conform to the contract, then the UCC default rule kicks in. The seller is to make a perfect tender: what is delivered must in every respect conform to the contract. Md. Code Ann., Com. Law § 2-601. And if what is delivered doesn’t conform to the contract, the buyer is not obligated to accept the goods.

Installment Contracts

Unless otherwise agreed, all goods should be delivered at one time, and no payment is due until tender. But where circumstances permit either party to make or demand delivery in lots, Section 2-307 of the UCC permits the seller to demand payment for each lot if it is feasible to apportion the price. Md. Code Ann., Com. Law § 2-307. What if the contract calls for delivery in installment, and one installment is defective—is that a material breach of the whole contract? No.  Section 2-612 of the UCC says this:

• The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
• Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole contract.

Md. Code Ann., Com. Law § 2-612.

Cure for Improper Delivery

Failure to make a perfect tender, unless otherwise agreed, is a material breach of the sales contract. However, before the defaulting seller is in complete default, she has a right to cure.

• Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

• Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

Md. Code Ann., Com. Law § 2-508.

Buyer orders Santa Claus candles deliverable November 5; on October 25 the goods are delivered, but they’re not right: they’re Christmas angel candles instead. But the seller still has eleven days to cure, and the buyer must allow that. Buyer places an order exactly the same as the first order, and the order arrives on November 5 in the original manufacturer’s packaging, but they’re not right. “Well,” says the seller, “I thought they’d be OK right out of the package. I’ll get the correct ones to you right away.” And the buyer would have a duty to allow that, if “right away” is a “further reasonable time.”

The seller’s duty is to make a timely delivery of conforming goods. Let’s take a look now at the buyer’s duties.

Performance by Buyer

 General Duties of Buyer

The general duty of the buyer is this: inspection, acceptance, and payment. Md. Code Ann., Com. Law §§ 2-301, 2-513. But the buyer’s duty does not arise unless the seller tenders delivery.

Inspection

Under Sections 2-513(1) and (2), the buyer has a qualified right to inspect goods. Md. Code Ann., Com. Law § 2-513. That means the buyer must be given the chance to look over the goods to determine whether they conform to the contract. If they do not, he may properly reject the goods and refuse to pay. The right to inspect is subject to three exceptions:

1. The buyer waives the right. If the parties agree that payment must be made before inspection, then the buyer must pay (unless the nonconformity is obvious without inspection). Payment under these circumstances does not constitute acceptance, and the buyer does not lose the right to inspect and reject later.
2. The delivery is to be made C.O.D. (cash on delivery).
3. Payment is to be made against documents of title.

If the buyer fails to inspect, or fails to discover a defect that an inspection would have revealed, he cannot later revoke his acceptance, subject to some exceptions.

Acceptance

Acceptance is clear enough: it means the buyer takes the goods. But the buyer’s options on improper delivery need to be examined, because that’s often a problem area.

The buyer may accept goods by words, silence, or action. Section 2-606(1) of the UCC defines acceptance as occurring in any one of three circumstances:

1. Words. The buyer, after a reasonable opportunity to inspect, tells the seller either that the goods conform or that he will keep them despite any nonconformity.
2. Silence. The buyer fails to reject, after a reasonable opportunity to inspect.
3. Action. The buyer does anything that is inconsistent with the seller’s ownership, such as using the goods (with some exceptions) or selling the goods to someone else.

Once the buyer accepts, she is obligated to pay at the contract rate and loses the right to reject the goods. Md. Code Ann., Com. Law § 2-607. In short, she is stuck, subject to some exceptions set forth in Section 2-608.

Payment

The parties may specify in their contract what payment means and when it is to be made. If they don’t, the UCC controls the transaction. Md Code Ann., Com. Law §§ 2-511, 2-512.

Section 2-511:

“(1) Unless otherwise agreed tender of payment is a condition to the seller’s duty to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.”

Md. Code Ann., Com. Law § 2-511.

Section 2-512 states:

“(1) Where the contract requires payment before inspection, non-conformity of the goods does not excuse the buyer from so making payment unless

• (a) the non-conformity appears without inspection; or
• (b) despite tender of the required documents the circumstances would justify injunction against honor under the provisions of this Act (see Md. Code Ann., Com. Law § 5-114).

(2) Payment pursuant to subsection (1) does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his remedies.”

Md. Code Ann., Com. Law § 2-512.

A Buyer’s Right on Nonconforming Delivery

Obviously if the delivery is defective, the disappointed buyer does not have to accept the goods: the buyer may (a) reject the whole, (b) accept the whole, or (c) accept any commercial unit and reject the rest or (d)—in two situations—revoke an acceptance already made. Md. Code Ann., Com. Law §§ 2-601, 2A-509.

Rejection and a Buyer’s Duties after Rejection

Rejection is allowed if the seller fails to make a perfect tender. Md.  Code Ann., Com. Law § 2-601.  The rejection must be made within a reasonable time after delivery or tender. Once it is made, the buyer may not act as the owner of the goods. If he has taken possession of the goods before he rejects them, he must hold them with reasonable care to permit the seller to remove them. If the buyer is a merchant, then the buyer has a special duty to follow reasonable instructions from the seller for disposing of the rejected goods; if no instructions are forthcoming and the goods are perishable, then he must try to sell the goods for the seller’s account and is entitled to a commission for his efforts. Whether or not he is a merchant, a buyer may store the goods, reship them to the seller, or resell them—and charge the seller for his services—if the seller fails to send instructions on the goods’ disposition. Such storage, reshipping, and reselling are not acceptance or conversion by the buyer.

Acceptance of a Nonconforming Delivery

The buyer need not reject a nonconforming delivery. She may accept it with or without allowance for the nonconformity.

Acceptance of Part of a Nonconforming Delivery

The buyer may accept any commercial unit and reject the rest if she wants to. A commercial unit means “such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine), a set of articles (as a suite of furniture or an assortment of sizes), a quantity (as a bale, gross, or carload), or any other unit treated in use or in the relevant market as a single whole.” Md. Code Ann., Com. Law §§ 2-105 and 2A103(1).

Installment Sales

A contract for an installment sale complicates the answer to the question, “What right does the buyer have to accept or reject when the seller fails to deliver properly?” (An installment contract is one calling for delivery of goods in separate lots with separate acceptance for each delivery.) The general answer is found in Section 2-612, which permits the buyer to reject any nonconforming installment if the nonconformity cannot be cured if it substantially impairs the value of that particular installment. Md. Code Ann., Com. Law § 2-612. However, the seller may avoid rejection by giving the buyer adequate assurances that he will cure the defect, unless the particular defect substantially impairs the value of the whole contract. Id.

Suppose the Corner Gas Station contracts to buy 12,000 gallons of regular gasoline from Gasoline Seller, deliverable in twelve monthly installments of 1,000 gallons on the first of each month, with a set price payable three days after delivery. In the third month, Seller is short and can deliver only 500 gallons immediately and will not have the second 500 gallons until midmonth. May Corner Gas reject this tender? The answer depends on the circumstances. The nonconformity clearly cannot be cured, since the contract calls for the full 1,000 on a particular day. But the failure to make full delivery does not necessarily impair the value of that installment; for example, Corner Gas may know that it will not use up the 500 gallons until midmonth. However, if the failure will leave Corner Gas short before midmonth and unable to buy from another supplier unless it agrees to take a full 1,000 (more than it could hold at once if it also took Seller’s 500 gallons), then Corner Gas is entitled to reject Seller’s tender.

Is Corner Gas entitled to reject the entire contract on the grounds that the failure to deliver impairs the value of the contract as a whole? Again, the answer depends on whether the impairment was substantial. Suppose other suppliers are willing to sell only if Corner Gas agrees to buy for a year. If Corner Gas needed the extra gasoline right away, the contract would have been breached as whole, and Corner Gas would be justified in rejecting all further attempted tenders of delivery from Seller. Likewise, if the spot price of gasoline were rising so that month-to-month purchases from other suppliers might cost it more than the original agreed price with Seller, Corner Gas would be justified in rejecting further deliveries from Seller and fixing its costs with a supply contract from someone else. Of course, Corner Gas would have a claim against Seller for the difference between the original contract price and what it had to pay another supplier in a rising market (as you’ll see later in this section).

Revocation

A revocation of acceptance means that although the buyer has accepted and exercised ownership of the goods, he can return the goods and get his money back. There are two circumstances in which the buyer can revoke an acceptance if the nonconformity “substantially impairs its value to him.” Md. Code Ann., Com. Law § 2-608.

1. if the buyer reasonably thought the nonconformity would be cured and it is not within a reasonable time; or
2. without discovery of such nonconformity if his acceptance was reasonably induced by the difficulty of discovery before acceptance or by the seller’s assurances. Id.

Consider two examples illustrated in the next paragraph. The first deals with item 1 and the second deals with item 2.

In August 1983, the Borsages purchased a furnished mobile home on the salesperson’s assertion that it was “the Cadillac of mobile homes.” But when they moved in, the Borsages discovered defects: water leaks, loose moldings, a warped dishwasher door, a warped bathroom door, holes in walls, defective heating and cooling systems, cabinets with chips and holes, furniture that fell apart, mold and mildew in some rooms, a closet that leaked rainwater, and defective doors and windows. They had not seen these defects at the time of purchase because they looked at the mobile home at night and there were no lights on in it. The Borsages immediately complained. Repairmen came by but left, only promising to return again. Others did an inadequate repair job by cutting a hole in the bottom of the home and taping up the hole with masking tape that soon failed, causing the underside of the home to pooch out. Yet more repairmen came by but made things worse by inadvertently poking a hole in the septic line and failing to fix it, resulting in a permanent stench. More repairmen came by, but they simply left a new dishwasher door and countertop at the home, saying they didn’t have time to make the repairs. North River Homes, Inc., v. Borsage, Mississippi, 594 So.2d 1153 (Miss. 1992).

In June 1984, the Borsages provided the seller a long list of uncorrected problems; in October they stopped making payments. Nothing happened. In March 1986—thirty-one months after buying the mobile home—they told the seller to pick up the mobile home: they revoked their acceptance and sued for the purchase price. The defendant seller argued that the Borsages’ failure to move out of the house for so long constituted acceptance. But they were repeatedly assured the problems would be fixed, and moreover they had no place else to live, and no property to put another mobile home on if they abandoned the one they had. The court had no problem validating the Borsages’ revocation of acceptance, under the section noted earlier, if they ever had accepted it. The seller might have a right to some rental value, though. Id. at 1161-1162.

In April 1976, Clarence Miller ordered a new 1976 Dodge Royal Monaco station wagon from plaintiff Colonial Dodge. The car included a heavy-duty trailer package with wide tires. The evening of the day the Millers picked up the new car, Mrs. Miller noticed that there was no spare tire. The following morning, the defendant notified the plaintiff that he insisted on a spare tire, but when he was told there were no spare tires available (because of a labor strike), Mr. Miller told the plaintiff’s salesman that he would stop payment on the check he’d given them and that the car could be picked up in front of his house. He parked it there, where it remained until the temporary registration sticker expired and it was towed by the police to an impound yard. Plaintiff sued for the purchase price, asserting that the missing spare tire did not “substantially impair the value of the goods to the buyer.” On appeal to the Michigan Supreme Court, the plaintiff lost. “In this case the defendant’s concern with safety is evidenced by the fact that he ordered the special package which included spare tires. The defendant’s occupation demanded that he travel extensively, sometimes in excess of 150 miles per day on Detroit freeways, often in the early morning hours.…He was afraid of a tire going flat…at 3 a.m. Without a spare, he would be helpless until morning business hours. The dangers attendant upon a stranded motorist are common knowledge, and Mr. Miller’s fears are not unreasonable.” The court observed that although he had accepted the car before he discovered the nonconformity, that did not preclude revocation: the spare was under a fastened panel, concealed from view. Colonial Dodge v. Miller, 362 N.W.2d 704 (Mich. 1984).

Remedies

General Policy

The general policy of the Uniform Commercial Code (UCC) is to put the aggrieved party in a good position as if the other party had fully performed—as if there had been a timely delivery of conforming goods. The UCC provisions are to be read liberally to achieve that result if possible. Thus the seller has a number of potential remedies when the buyer breaches, and likewise the buyer has a number of remedies when the seller breaches.

Specifying Remedies

We have emphasized how the UCC allows people to make almost any contract they want (as long as it’s not unconscionable). Just as the parties may specify details of performance in the contract, so they may provide for and limit remedies in the event of breach. Md. Code Ann., Com. Law §§ 2-719(1), 2A-503(1). The following would be a typical limitation of remedy: “Seller’s sole obligation in the event goods are deemed defective by the seller is to replace a like quantity of nondefective goods.” A remedy is optional unless it is expressly agreed that it is the exclusive remedy. Md. Code Ann., Com. Law §§ 2-719(1)(b), 2A-503(2).

But the parties are not free to eliminate all remedies. As the UCC comment to this provision puts it, “If the parties intend to conclude a contract for sale within this Article they must accept the legal consequence that there be at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract.” Id. at cmt. 1.  In particular, the UCC lists three exemptions from the general rule that the parties are free to make their contract up any way they want as regards remedies:

1. When the circumstances cause the agreed-to remedy to fail or be ineffective, the default UCC remedy regime works instead. Md. Code Ann., Com. Law §§ 2-719(2), 2A-503(2).
2. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but limitation of damages where the loss is commercial is not. Md. Code Ann., Com. Law §§ 2-719(3), 2A-503(2).
3. The parties may agree to liquidated damages: “Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.” Md. Code Ann., Com. Law §§ 2-718. The Code’s equivalent position on leases is interestingly slightly different. Section 2A-504(1) says damages may be liquidated “but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused” by the breach. Md. Code Ann., Com. Law § 2A-504(1). It leaves out anything about difficulties of proof or inconvenience of obtaining another adequate remedy.

Statute of Limitations

The UCC statute of limitations for breach of any sales contract is four years. Md. Code Ann., Com. Law § 2-725. The parties may “reduce the period of limitation to not less than one year but may not extend it.” Md. Code Ann., Com. Law § 2-725. Section 2A-506(1) for leases is similar, but omits the prohibition against extending the limitation. Article 2-725(2) goes on: “A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.”  Md. Code Ann., Com. Law § 2-725.

Seller’s Remedies

Article 2 in General

Per section 2-703, 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, then also with respect to the whole undelivered balance, the aggrieved seller may:

• withhold delivery of such goods;
• stop delivery by any bailee;
• identify to the contract conforming goods not already identified;
• reclaim the goods on the buyer’s insolvency;
• resell and recover damages;
• recover damages for non-acceptance or repudiation;
• in a proper case recover the price;
• cancel.

Items (1)–(4) address the seller’s rights to deal with the goods; items (5)–(7) deal with the seller’s rights as regards the price, and item (8) deals with the continued existence of the contract.

To illustrate the UCC’s remedy provision, in this and the following section, we assume these facts: Howard, of Los Angeles, enters into a contract to sell and ship one hundred prints of a Pieter Bruegel painting, plus the original, to Bunker in Dallas. Twenty-five prints have already been delivered to Bunker, another twenty-five are en route (having been shipped by common carrier), another twenty-five are finished but haven’t yet been shipped, and the final twenty-five are still in production. The original is hanging on the wall in Howard’s living room. We will take up the seller’s remedies if the buyer breaches and if the buyer is insolvent.

Remedies on Breach

Bunker, the buyer, breaches the contract. He sends Howard an e-mail stating that he won’t buy and will reject the goods if delivery is attempted. Howard has the following cumulative remedies; election is not required.

Withhold Further Delivery

Howard may refuse to send the third batch of twenty-five prints that are awaiting shipment. Md. Code Ann., Com. Law § 2-703(a).

Stop Delivery

Howard may also stop the shipment. If Bunker is insolvent, and Howard discovers it, Howard would be permitted to stop any shipment in the possession of a carrier or bailee. Md.  Code Ann., Com. Law §§ 2-702, 2-703(b).  If Bunker is not insolvent, the UCC permits Howard to stop delivery only of carload, truckload, planeload, or larger shipment. Md.  Code Ann., Com. Law § 2-705.  The reason for limiting the right to bulk shipments in the case of non-insolvency is that stopping delivery burdens the carrier and requiring a truck, say, to stop and the driver to find a small part of the contents could pose a sizeable burden.

Identify to the Contract Goods in Possession

Howard could “identify to the contract” the twenty-five prints in his possession. Section 2-704(1) permits the seller to denote conforming goods that were not originally specified as the exact objects of the contract, if they are under his control or in his possession at the time of the breach. Md. Code Ann., Com. Law §§ 2-703(c), 2-704(1).  Assume that Howard had five hundred prints of the Bruegel painting. The contract did not state which one hundred of those prints he was obligated to sell, but once Bunker breached, Howard could declare that those particular prints were the ones contemplated by the contract. He has this right whether or not the identified goods could be resold. Moreover, Howard may complete production of the twenty-five unfinished prints and identify them to the contract, too, if in his “reasonable commercial judgment” he could better avoid loss—for example, by reselling them. If continued production would be expensive and the chances of resale slight, the seller should cease manufacture and resell for scrap or salvage value.

Resell

Howard could resell the seventy-five prints still in his possession as well as the original. Md.  Code Ann., Com. Law § 2-703(d).  As long as he proceeds in good faith and in a commercially reasonable manner, per Section 2-706(2) and Section 2A-527(3), he is entitled to recover the difference between the resale price and the contract price, plus incidental damages (but less any expenses saved, like shipping expenses). Md. Code Ann., Com. Law §§ 2-706, 2A-527.  “Incidental damages” include any reasonable charges or expenses incurred because, for example, delivery had to be stopped, new transportation arranged, storage provided for, and resale commissions agreed on.

The seller may resell the goods in virtually any way he desires as long as he acts reasonably. He may resell them through a public or private sale. If the resale is public—at auction—only identified goods can be sold, unless there is a market for a public sale of futures in the goods (as there is in agricultural commodities, for example). In a public resale, the seller must give the buyer notice unless the goods are perishable or threaten to decline in value speedily. The goods must be available for inspection before the resale, and the buyer must be allowed to bid or buy.

The seller may sell the goods item by item or as a unit. Although the goods must relate to the contract, it is not necessary for any or all of them to have existed or to have been identified at the time of breach. The seller does not owe the buyer anything if resale or re-lease results in a profit for the seller. Md. Code Ann., Com. Law §§ 2-706(6), 2A-527.

Recover Damages

The seller may recover damages equal to the difference between the market price (measured at the time and place for tender of delivery) and the unpaid contract price, plus incidental damages, but less any expenses saved because of the buyer’s breach. Md.  Code Ann., Com. Law § 2-703(e), 2-708.  Suppose Howard’s contract price was $100 per print plus $10,000 for the original and that the market price on the day Howard was to deliver the seventy-five prints was $75 (plus $8,000 for the original). Suppose too that the shipping costs (including insurance) that Howard saved when Bunker repudiated were $2,000 and that to resell them Howard would have to spend another $750. His damages, then, would be calculated as follows: original contract price ($17,500) less market price ($13,625) = $3,875 less $2,000 in saved expenses = $1,875 plus $750 in additional expenses = $2,625 net damages recoverable by Howard, the seller.

If the formula would not put the seller in as good a position as performance under the contract, then the measure of damages is lost profits—that is, the profit that Howard would have made had Bunker taken the original painting and prints at the contract price (again, deducting expenses saved and adding additional expenses incurred, as well as giving credit for proceeds of any resale). Md. Code Ann., Com. Law §§ 2-708(2), 2A-528(2). This provision becomes especially important for so-called lost volume sellers. Howard may be able to sell the remaining seventy-five prints easily and at the same price that Bunker had agreed to pay. Then why isn’t Howard whole? The reason is that the second buyer was not a substitute buyer but an additional one; that is, Howard would have made that sale even if Bunker had not reneged on the contract. So Howard is still short a sale and is out a profit that he would have made had Bunker honored the contract.

Recover the Price

Howard—the seller—could recover from Bunker for the price of the twenty-five prints that Bunker holds. Md. Code Ann., Com. Law §§ 2-703(e), 2-709. Or suppose they had agreed to a shipment contract, so that the risk of loss passed to Bunker when Howard placed the other prints with the trucker and that the truck crashed en route and the cargo destroyed. Howard could recover the price. Or suppose there were no market for the remaining seventy- five prints and the original. Howard could identify these prints to the contract and recover the contract price. If Howard did resell some prints, the proceeds of the sale would have to be credited to Bunker’s account and deducted from any judgment. Unless sold, the prints must be held for Bunker and given to him upon his payment of the judgment.

Cancel the Contract

When Bunker repudiated, Howard could declare the contract cancelled. This would also apply if a buyer fails to make a payment due on or before delivery. Cancellation entitles the non-breaching party to any remedies for the breach of the whole contract or for any unperformed balance. That is what happens when Howard recovers damages, lost profits, or the price. Md. Code Ann., Com. Law §§ 2-703(f), 2A-524(1)(a).

Note again that these UCC remedies are cumulative. That is, Howard could withhold future delivery and stop delivery en route, and identify to the contract goods in his possession, and resell, and recover damages, and cancel.

Remedies on Insolvency

The remedies apply when the buyer breaches the contract. In addition to those remedies, the seller has remedies when he learns that the buyer is insolvent, even if the buyer has not breached. Md.  Code Ann., Com. Law § 2-702.  Insolvency results, for example, when the buyer has “ceased to pay his debts in the ordinary course of business,” or the buyer “cannot pay his debts as they become due.” Md. Code Ann., Com. Law § 1-201(23).

Upon learning of Bunker’s insolvency, Howard could refuse to deliver the remaining prints, unless Bunker pays cash not only for the remaining prints but for those already delivered. If Howard learned of Bunker’s insolvency within ten days of delivering the first twenty-five prints, he could make a demand to reclaim them. Md.  Code Ann., Com. Law § 2-702(2).  If within three months prior to delivery, Bunker had falsely represented that he was solvent, the ten- day limitation would not cut off Howard’s right to reclaim. Id.  If he does seek to reclaim, Howard will lose the right to any other remedy with respect to those particular items. However, Howard cannot reclaim goods already purchased from Bunker by a customer in the ordinary course of business. The customer does not risk losing her print purchased several weeks before Bunker has become insolvent. Md. Code Ann., Com. Law § 2-702 (3).

In the lease situation, of course, the goods belong to the lessor—the lessor has title to them—so the lessor can repossess them if the lessee defaults. Md. Code Ann., Com. Law § 2A-525(2).

Buyer’s Remedies

In this section, let us assume that Howard, rather than Bunker, breaches, and all other circumstances are the same. That is, Howard had delivered twenty-five prints, twenty-five more were en route, the original painting hung in Howard’s living room, another twenty-five prints were in Howard’s factory, and the final twenty-five prints were in production.

In General

Where the seller fails to make delivery or repudiates, or the buyer rightfully rejects or justifiably revokes, then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract, the buyer may

• cancel the contract, and
• recover as much of the price as has been paid; and
• “cover” and get damages; and
• recover damages for non-delivery.

Md. Code Ann., Com. Law § 2-711(1).

Where the seller fails to deliver or repudiates, the buyer may also:

• if the goods have been identified recover them; or
• in a proper case obtain specific performance or
• replevy the goods.

Md. Code Ann., Com. Law § 2-711(2).

On rightful rejection or justifiable revocation of acceptance, a buyer:

• has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller.

Md. Code Ann., Com. Law § 2-711(3)

If the buyer has accepted non-conforming goods and notified seller of the non-conformity, buyer can

• recover damages for the breach; Md. Code Ann., Com. Law § 2-714

and in addition the buyer may

• recover incidental damages and
• recover consequential Md. Code Ann., Com. Law § 2-715

Thus the buyer’s remedies can be divided into two general categories: (1) remedies for goods that the buyer does not receive or accept, when he has justifiably revoked acceptance or when the seller repudiates, and (2) remedies for goods accepted. Md. Code Ann., Com. Law §§ 2-711 – 2-716.

Goods Not Received

The UCC sets out buyer’s remedies if goods are not received or if they are rightfully rejected or acceptance is rightfully revoked.

Cancel

If the buyer has not yet received or accepted the goods (or has justifiably rejected or revoked acceptance because of their nonconformity), he may cancel the contract and—after giving notice of his cancellation— he is excused from further performance. Md. Code Ann., Com. Law §§ 2-711(1), 2-106, 2A-508(1)(a), and 2A-505(1).

Recover the Price

Whether or not the buyer cancels, he is entitled to recover the price paid above the value of what was accepted.

Cover

In the example case, Bunker—the buyer—may “cover” and have damages: he may make a good-faith, reasonable purchase of substitute goods. Md.  Code Ann., Com. Law § 2-712.  He may then recover damages from the seller for the difference between the cost of cover and the contract price. This is the buyer’s equivalent of the seller’s right to resell. Thus Bunker could try to purchase seventy-five additional prints of the Bruegel from some other manufacturer. But his failure or inability to do so does not bar him from any other remedy open to him.

Sue for Damages for Nondelivery

Bunker could sue for damages for nondelivery. Under Section 2-713 of the UCC, the measure of damages is the difference between the market price at the time when the buyer learned of the breach and the contract price (plus incidental damages, less expenses saved). Md.  Code Ann., Com. Law § 2-713.  Suppose Bunker could have bought seventy- five prints for $125 on the day Howard called to say he would not be sending the rest of the order. Bunker would be entitled to $1,875—the market price ($9,375) less the contract price ($7,500). This remedy is available even if he did not in fact purchase the substitute prints. Suppose that at the time of breach, the original painting was worth $15,000 (Howard having just sold it to someone else at that price). Bunker would be entitled to an additional $5,000, which would be the difference between his contract price and the market price.

For leases, Section 2A-519(1), provides the following: “the measure of damages for non-delivery or repudiation by the lessor or for rejection or revocation of acceptance by the lessee is the present value, as of the date of the default, of the then market rent minus the present value as of the same date of the original rent, computed for the remaining lease term of the original lease agreement, together with incidental and consequential damages, less expenses saved in consequence of the lessor’s default.” Md. Code Ann., Com. Law § 2A-519(1).

Recover the Goods

If the goods are unique—as in the case of the original Bruegel—Bunker is entitled to specific performance—that is, recovery of the painting. This section is designed to give the buyer rights comparable to the seller’s right to the price and modifies the old common-law requirement that courts will not order specific performance except for unique goods. It permits specific performance “in other proper circumstances,” and these might include particular goods contemplated under output or requirements contracts or those peculiarly available from one market source. Md. Code Ann., Com. Law §§ 2- 716(1), 2A-521(1).

Even if the goods are not unique, the buyer is entitled to replevy them if they are identified to the contract and after good-faith effort he cannot recover them. Replevin is the name of an ancient common-law action for recovering goods that have been unlawfully taken; in effect it is not different from specific performance, and the UCC makes no particular distinction between them in Section 2-716. Section 2A-521 holds the same for leases. Md. Code Ann., Com. Law §§ 2-716, 2A-521.  In our case, Bunker could replevy the twenty-five prints identified and held by Howard.

Bunker also has the right to recover the goods should it turn out that Howard is insolvent. Under Section 2-502, if Howard were to become insolvent within ten days of the day on which Bunker pays the first installment of the price due, Bunker would be entitled to recover the original and the prints, as long as he tendered any unpaid portion of the price. Md. Code Ann., Com. Law § 2-502.

For security interest in goods rightfully rejected, if the buyer rightly rejects nonconforming goods or revokes acceptance, he is entitled to a security interest in any goods in his possession. Md.  Code Ann., Com. Law § 2-711(3).  In other words, Bunker need not return the twenty-five prints he has already received unless Howard reimburses him for any payments made and for any expenses reasonably incurred in their inspection, receipt, transportation, care, and custody. If Howard refuses to reimburse him, Bunker may resell the goods and take from the proceeds the amount to which he is entitled. Md. Code Ann., Com. Law §§ 2-711(3), 2-706, 2A-508(5), 2A- 527(5).

Goods Accepted

The buyer does not have to reject nonconforming goods. She may accept them anyway or may effectively accept them because the time for revocation has expired. In such a case, the buyer is entitled to remedies as long as she notifies the seller of the breach within a reasonable time. Md. Code Ann., Com. Law §§ 2-714(1) and 2A-519(3). In our example, Bunker can receive three types of damages, all of which are outlined here.

Compensatory Damages

Bunker may recover damages for any losses that in the ordinary course of events stem from the seller’s breach. Suppose Howard had used inferior paper that was difficult to detect, and within several weeks of acceptance the prints deteriorated. Bunker is entitled to be reimbursed for the price he paid.

Consequential Damages

Bunker is also entitled to consequential damages. Md. Code Ann., Com. Law §§ 2-714(3), 2-715, and 2A-519(3). These are losses resulting from general or particular requirements of the buyer’s needs, which the seller had reason to know and which the buyer could not reasonably prevent by cover or otherwise. Suppose Bunker is about to make a deal to resell the twenty-five prints that he accepted, only to discover that Howard used inferior ink that faded quickly. Howard knew that Bunker was in the business of retailing prints and therefore he knew or should have known that one requirement of the goods was that they be printed in long-lasting ink. Because Bunker will lose the resale, he is entitled to the profits he would have made. (If Howard had not wished to take the risk of paying for consequential damages, he could have negotiated a provision limiting or excluding this remedy.) The buyer has the burden of proving consequential damages, but the UCC does not require mathematical precision. Suppose customers come to Bunker’s gallery and sneer at the faded colors. If he can show that he would have sold the prints were it not for the fading ink (perhaps by showing that he had sold Bruegels in the past), he would be entitled to recover a reasonable estimate of his lost profits.

In De La Hoya v. Slim’s Gun Shop, 146 Cal. Rptr. 68 (Cal. App. Dep’t Super. Ct. 1978), the plaintiff purchased a handgun from the defendant, a properly licensed dealer. While the plaintiff was using it for target shooting, he was questioned by a police officer, who traced the serial number of the weapon and determined that— unknown to either the plaintiff or the defendant—it had been stolen. The plaintiff was arrested for possession of stolen property and incurred, in 2010 dollars, $3,000 in attorney fees to extricate himself from the criminal charges. He sued the defendant for breach of the implied warranty of title and was awarded the amount of the attorney fees as consequential damages. On appeal the California court held it foreseeable that the plaintiff would get arrested for possessing a stolen gun, and “once the foreseeability of the arrest is established, a natural and usual consequence is that the [plaintiff] would incur attorney’s fee.” Id. at 72.

Incidental Damages

Section 2-715 allows incidental damages, which are “damages resulting from the seller’s breach including expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.” Md. Code Ann., Com. Law § 2-715. Section 2A-520(1) of the UCC is similar for leases.

Excuses for Non-Performance

In contracts for the sale of goods, as in common law, things can go wrong. What then?

Casualty to Identified Goods

As always, the parties may agree what happens if the goods are destroyed before delivery. The default is Sections 2-613 and 2A-221(a) “where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer,…then (a) if the loss is total the contract is avoided; and (b) if the loss is partial the buyer may nevertheless accept them with due allowance for the goods’ defects.” Md. Code Ann., Com. Law §§ 2-613, 2A-221(a). Thus if Howard ships the original Bruegel to Bunker but the painting is destroyed, through no fault of either party, before delivery occurs, the parties are discharged. If the frame is damaged, Bunker could, if he wants, take the painting anyway, but at a discount.

The UCC’s Take on Issues Affecting “Impossibility”

Impracticability

Sections 2-614(1) and 2A-404(1) require reasonable substitution for berthing, loading, and unloading facilities that become unavailable. They also require reasonable substitution for transportation and delivery systems that become “commercially impracticable”; if a practical alternative exists, “performance must be tendered and accepted.” Md. Code Ann., Com. Law §§ 2-614, 2A-404.   If Howard agreed to send the prints by rail, but a critical railroad bridge is unusable and no trains can run, delivery by truck would be required.

Section 2-615 says that the failure to deliver goods is not a breach of the seller’s duty “if performance as agreed has become impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic government regulation or order whether or not it later proves to be invalid.”   Md. Code Ann., Com. Law § 2-615.  Section 2A-405(b) is similar for leases.

Right to Adequate Assurances of Performance

Section 2-609, Comment 1, of the UCC observes that “the essential purpose of a contract…is actual performance [but] a continuing sense of reliance and security that the promised performance will be forthcoming when due is an important feature of the bargain.” Thus the UCC says that if one party has “reasonable grounds for insecurity arise…either party may in writing demand adequate assurance and until he receives such assurance may if commercially reasonable suspend [his own] performance[.]” Md. Code Ann., Com. Law § 2-609, cmt. 1.

Anticipatory Repudiation

Obviously if a person repudiates the contract, it’s clear she will not perform, but what if she repudiates before time for performance is due? Does the other side have to wait until nonperformance actually happens, or can he sue in anticipation of the other’s default? Sections 2-610 and 2A-402 say the aggrieved party can do either: wait for performance or “resort to any remedy for breach.” Md. Code Ann., Com. Law §§ 2-610 and 2A-402.  Under sections 2-611 and 2A-403, the party who anticipatorily repudiated can “retract his repudiation unless the aggrieved party has, since the repudiation, cancelled or materially changed his position[.]” Md. Code Ann., Com. Law §§ 2-611 and 2A-403.  Suppose that Howard has cause to suspect that if he does deliver the goods, Bunker won’t pay. Howard may write to Bunker and demand—not request—assurances of adequate performance. If such assurances are not adequately forthcoming, Howard may assume that Bunker repudiated the contract and seek appropriate remedies.

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