Eckert, Robert L.

Goodman, Roger

English

UND Scholarly Commons (University of North Dakota)

North Dakota Law Review Volume 30 Number 3 Article 5 1954 Remedies of a Seller for Breach of Contract under the Uniform Commercial Code Robert L. Eckert Roger Goodman Follow this and additional works at: https://commons.und.edu/ndlr  Part of the Law Commons Recommended Citation Eckert, Robert L. and Goodman, Roger (1954) "Remedies of a Seller for Breach of Contract under the Uniform Commercial Code," North Dakota Law Review: Vol. 30 : No. 3 , Article 5. Available at: https://commons.und.edu/ndlr/vol30/iss3/5 This Note is brought to you for free and open access by the School of Law at UND Scholarly Commons. It has been accepted for inclusion in North Dakota Law Review by an authorized editor of UND Scholarly Commons. For more information, please contact und.commons@library.und.edu. NOTESseller can resell to mitigate damages instead of resorting to thearbitrary "title" theory. The need of this functional approach liesat the base of the sales section of the UCC. From the framer'sviewpoint, a mere re-codification of the present law is not thesolution.GERALD G. GLASERWILLIAM C. KELSCH.REMEDIES OF A SELLER FOR BREACH OF CONTRACT UNDER THEUNIFORM COMMERCIAL CODE. - The treatment of the remedies ofa seller of goods for breach of a contract of sale undertaken in theUCC represents in miniature a picture of the Code's overall hand-ling of the law of commercial transactions. A preceding discussionhas touched upon one aspect of this matter, outlining the funda-mental nature of the UCC's departure from the title theory to morepragmatic and abjectively applicable standards for the settlementof such disputes.1 No repetition of that discussion will be attemptedhere. It is merely the purpose of the present discussion to comparethe provisions of the UCC with those of the present North Dakotastatutes, to illustrate the improvements and changes undertaken bythe new Code.I.In many of its provisions, the Code does not alter the basicprinciples of North Dakota law at all. A good example is its treat-ment of insolvency. Section 2-207 (a) of the new Code permits aseller upon discovery of a buyer's insolvency to refuse delivery"except for cash including payment for all goods theretofore de-livered under the contract...." A later section states that if "thegoods are in transit when the buyer's insolvency is discovered theseller may stop their delivery.2 "Insolvency" exists where a personhas ceased to pay his debts in the ordinary course of business; it isnot necessary that he be adjudged insolvent within the meaning ofthe federal statutes on bankruptcy.3North Dakota's law is very similar to the above sections of theproposed Code. An unpaid seller does not have to deliver goods toan insolvent buyer unless they are paid for in cash,4 and has the1. Kelsch and Glaser, Title Theory and the Uniform Commercial Code, suprapage 211.2. U.C.C. § 2-705 (1952).3. U.C.C. § 1-201 (1952).4. N.D. Rev. Code f 51-0155 (1943).NORTH DAKOTA LAW REVIEWright of stopping the goods while they are in transit upon discoveryof the buyer's insolvency 5 even though the property in the goodshas passed to the buyer.a The definition of insolvency is preciselythe same.7 If there is any change at all it is that the Code isclearer and more exact than the North Dakota statutes on the seller'sright to withhold goods or stop delivery regardless of the passage oftitle.Section 2-702 (b) provides that a seller who discovers thebuyer to be insolvent after the goods have passed into the pos-session of the buyer on credit may reclaim such goods within tendays after they have been received. If the buyer has made a mis-reprentation of solvency to the seller in writing within three monthsbefore delivery, however, the ten-day limitation does not apply.In contrast to the preceding sections this is a sharp change fromthe law as it stands today, and gives the seller a right which isnovel to the common law,8 and represents an extension of the pro-tection given a seller who has sold on credit and has deliveredgoods to a buyer immediately preceding insolvency.' The theoryof the proposed change is logical enough: it is felt that any receiptof goods by a buyer within ten days of overt insolvency amountsto a tacit business misrepresentation of solvency at the time of thereceipt of the goods and is therefore fraudulent as against theparticular seller.1" The same section also provides that where theseller is successful in reclaiming his goods he is excluded from allother remedies with respect to them. There is obvious justificationfor this: successful reclamation of such goods constitutes preferen-tial treatment of the seller as against the buyer's other creditors andthis provision tends to adjust their situation.1Section 2-703 is an index of the seller's remedies in general.It gathers together all the remedies available to a seller for anybreach by the buyer;1 2 it rejects any doctrine of election of remedy,and the remedies are made cumulative rather than exclusive.1There is no comparable index section in North Dakota law.5. N.D. Rev. Code § 51-0158 (1943).6. N.D. Rev. Code § 51-0154 (1943).7. N.D. Rev. Code § 51-0101 (1943); Coleman v. New York, etc. Ry. Co., 215Mass. 45, 102 N.E. 92 (1913).8. Williston, The Law of Salei in the Proposed Uniform Commercial Code, 63 Harv.L.Rev. 561, 584 (1950)."9. U.C.C. § 2-702 (comment) (1952).10. Ibid.11. Ibid.12. U.C.C. § 2-703 (comments) (1952).13. Symposium: The Uniform Commercial Code - The Effet of Its Adoption In Tennes-see, 22 Tenn. 776, 802 (1953).NOTESThe next section of the Code provides that where a buyer haswrongfully breached the contract the seller "may identify to thecontract conforming goods not already identified at the time helearned of the breach if they are in his possession or control." 14If the goods are in the process of procurement or manufacture theseller "may complete the process and identify them to the contractunless in reasonable commercial judgment the completion willmaterially increase the damages."15 The reason for allowing theseller to identify conforming goods to the contract and to finishthe procurement and manufacture of goods is to make the goodsavailable for resale under the resale section which will be discussedlater. One writer has commented that this provision could allowthe seller to unnecessarily increase damages. 16 However, as theseller has to follow a standard of conduct which is commerciallyreasonable, any injustice would seem unlikely. This section worksan alteration in the law of North Dakota, since the statutes pro-vide that once the buyer repudiates the contract he is liable to theseller "for no greater damages than the seller would have sufferedif he did nothing towards carrying out the contract after receivingnotice of the buyer's repudiation."17II.Section 2-705 extends the seller's right of stoppage of goods intransit. Upon discovery of the buyer's insolvency, or upon failureof the buyer to make a payment due, or if for any other reason theseller has a right to withhold or reclaim goods, the seller may stopdelivery of goods in the possession of a carrier or other bailee.' 8This is also the case in North Dakota.19 However, this section dif-fers from the state's present law in that the seller can stop deliveryfor almost any breach by the buyer, -2 instead of merely insolvencyas under the existing statutes. 2'The right of the seller to stop delivery under the UCC existsuntil the buyer receives the goods or until the bailee or the carrieracknowledges to the buyer that the goods are held for him.22 Theseller cannot stop delivery if there has been a negotiation to the14. U.C.C. § 2-704 (1952).15. Ibid.16. Williston, supra note 8, at 586.17. N.D. Rev. Code, § 51-0165(4) (1943).18. U.C.C. § 2-705 (comment) (1952).19. Powell v. Kechnie, 3 Dak. 13, 19 N.W. 410 (1884).20. U.C.C. § 2-705 (comments) (1952).21. N.D. Rev. Code § 51-0158 (1943); Weyerhauser Timber Co. v. First NationalBank, 105 Ore. 172, 38 P.2d 48 (1934).22. U.C.C., 2-705 (1952).NORTH DAKOTA LAW REVIEWbuyer of any negotiable document of title covering the goods. 'These provisions are substantially the same as present North Dakotalaw. 24 In order to stop delivery the seller must notify the bailee sothat by the exercise of reasonable diligence he will be able to avoiddelivery;25 the seller is liable to the bailee for any ensuing chargesor damages. 26 This is also similar to existing North Dakota law.27Section 2-706 of the UCC is concerned with the resale of thegoods after the buyer's breach. After the buyer rejects or revokesacceptance of goods or fails to make a required payment the sellermay resell the goods. The resale must be made in good faith andin a commercially reasonable manner; upon so doing the seller mayrecover the difference between the resale price and the contractprice together with incidental damages. The only condition pre-cedent to a seller's right of resale is a breach by the buyer within thesection on the seller's remedies in general." "Other meticulousconditions and restrictions of the prior uniform statutory provisionare disapproved of by this Article and are replaced by standards ofcommercial reasonableness. '" It is not necessary that the subjectof the contract be in existence or that it be identified to the contractbefore the breach in order to permit a resale.:"' Where the resaleis private in character the seller must give the original buyerreasonable notice of his intention to resell, ' and notice must also begiven where there is a public sale unless the goods are perishableor threaten to devalue rapidly. : ' Present law does not requiresuch notice.Under the same section a purchaser who buys in good faithwill take the goods free of any claim on the part of the originalbuyer even though the seller fails to comply with all the require-mncnts of the section. :' This represents a broadening of the rightsof the bona fide purchaser.' Should the resale result in a profitthe seller is not accountable to the buyer,:' a provision whichfollows the present statute. : ';23. Ibid24. N.D. Rev. Code, § § 8-0442, 60-0848, 51-0158, and 51-0159 (1943).25. U.C.C., § 2-705 (1952).26. Ibid.27. N.D. Rev. Code, 51-0160 (1943).28. U.C.C., § 2-706 (comments) (1952).29. Ibid.30. U.C.C., § 2-706 (1952).31. Ibid.32. Ibid.33. U.C.C., § 2-706(5) (1952).34. N.D. Rev. Code § 51-0161 (1943).35. U.C.C., § 2-706(6) (1952).36. N.D. Rev. Code, § 51-0161 (1943).NOTESSection 2-707 of the Code provides that a buyer's agent orother consignor who has paid and has become responsible for theprice "or anyone who otherwise holds as against the buyer or con-signee a security interest in goods similar to that of a seller" is aperson in the position of a seller and is entitled to the rights of aseller. This changes present North Dakota law very little;-' itmerely expands present law to include financing agencies whichhonor a letter of credit for the buyer or discount a draft for theseller. :sIII.Section 2-708 of the UCC provides for the seller's damageswhere resale is impractical. The measure of damages is the differ-ence "between the price current at the time and place for tenderand the unpaid contract together with any incidental damages..."11Any expense saved in consequence of the buyer's breach is de-ducted. 40 If the measure of damages is inadequate to put the sellerin as good a position as performance would have done, then themeasure of damages is the profit which the seller would havemade from full performance by the buyer.4 This is practically thesame as present North Dakota law.42Section 2-709 states that when the buyer fails to pay the priceas it becomes due, the seller may recover the price "of goods ac-cepted or of conforming goods lost or damaged after risk of theirloss has passed to the buyer, and of goods identified to the contractif the seller is unable after reasonable effort to resell them at areasonable price . . ." This is approximately the same as presentlaw, 4 3 except that the UCC requires that the seller first attempt toresell the goods before he can maintain an action for the price.44The UCC also substitutes an objective test for the "not readily re-salable" standard of present law. 4 The action for the price can bemaintained only after a "reasonable effort to resell" the goods hasactually been made.46  The foregoing section also provides that37. N.D. Rev. Code, 51-0153 (1943).38. U.C.C., § 2-707 (comments) (1952).39. U.C.C., § 2-708 (1952).40. Ibid.41. Ibid.42. N.D. Rev. Code, § 51-0165 (1943); Jacobson v. Homer, 49 N.D. 741, 193 N.W.327 (1923).43. N.D. Rev. Code, § 51-0161 (1943). See Illustrated Postal Card and Novelty Co.v. Holt, 85 Conn. 140, 81 At. 1061 (1912).44. U. .C., § 2-709 (comment) (1952).45. UCC § 2-709 (1952).46. Ibid.NORTH DAKOTA LAW REVIEWwhere the seller sues for the price he must hold for the buyer anygoods that have been identified to the contract. If resale becomespossible he may resell them at any time prior to the collection ofthe judgment.47Section 2-710 of the UCC gives the seller the right to collectincidental damages. These incidental damages include any "com-mercially reasonable charges, expenses or commissions incurred instopping delivery, in the transportation, care and custody of goodsafter the buyer's breach, in connection with return or resale of thegoods or otherwise resulting from the breach." The purpose of thisprovision is to authorize reimbursement of the seller for expensesreasonably incurred by him as a result of the buyer's breach. 41 Itsets forth the principal elements of damage flowing from the breachbut intends to allow all commercially reasonable expenditures madeby the seller.49 It broadens, from the standpoint of present law, theseller's rights to recover damages. Under North Dakota law theseller is now entitled only to those damages that directly andnaturally result in the ordinary -course of events from the buyer'sbreach of contract,5" including interest and special damages, 51 butnot, apparently, such items as seller's commissions.IV.In summarizing the remedies for a breach of contract availableto a seller under the UCC as compared with present law, threedistinct improvements can be noted. First, the UCC substitutes"commercially reasonable" for "reasonable" as a standard of con-duct and measure of damages. Thus a seller whose contract hasbeen breached may complete the procurement and manufacture ofthe goods even after the breach unless in "reasonable commercialjudgment" the completion will materially increase the damages. 52Where the seller resells the goods after a breach he must do so in a"commercially reasonable manner" if he is to be able to collect thedifference between the resale price and the contract price. 53 Themethod, manner, time, place and terms of the resale must be "com-mercially reasonable" charges, expense, comissions or terms.54Second, the rights of the seller have been increased. The seller47. Ibid.48. U.C.C., § 2-710 (comments) (1952).49. Ibid.50. N.D. Rev. Code, § 51-0165 (1943).51. N.D. Rev. Code, § 51-0171 (1943).52. U.C.C., § 2-704 (1952).53. Id. § 2-706.54. Ibid.NOTESmay withhold goods or stop delivery to an insolvent buyer regard-less of the passage of title.55 The seller may recover goods from aninsolvent buyer within ten days of receipt upon discovery of thebuyer's insolvency; if there has been a written misrepresentation hemay recover at any time.56 The seller would be able to stop baileesas well as carriers from delivering goods to a buyer and the right ofstoppage is broadened so as to stem from almost any breach by thebuyer.5- The seller can collect more in incidental damages.58Third, the rights of the seller are made cumulative; any doc-trine of election of remedy is rejected. When the buyer breaches thecontract the seller may stop delivery"9 and identify to the contractconforming goods in his possession. 0 If the goods are in the processof procurement or manufacture the seller may complete the processand then identify them to the contract.61 The seller can then resellthe goods and recover damages.12 If resale is not possible, damagescan be recovered for non-acceptance, 3 or in a proper case recoverycan be had for the price.ROBERT L. ECKERTRocER GOODMAN.REMEDIES OF A BUYER FOR BREACH OF CONTRACT UNDER THEUNIFORM COMMERCIAL CODE. - Among those areas of the law inwhich the Uniform Commercial Code represents an improvementover the provisions of the Uniform Sales Act must be listed thesections of the Code covering remedies available to a buyer ofgoods where there has been a breach or a failure of performanceof a contract by the seller. In general, the Uniform Sales Act pre-sents a buyer with several familiar courses of procedure. When theseller wrongfully detains' the goods the buyer may sue for con-version. Where non-delivery occurs he is entitled to recover dam-ages for a breach of the contract. 2 He may accept the goods inevent they are tendered in a defective condition and sue for breach55. U.C.C., § 2-702 (1952).56. Ibid.57. U.C.C., 1 2-705 (1952).58. Id. & 2-710.59. Id. 1 2-705.60. Id. § 2-704.61. Ibid.62. U.C.C., 1 2-706 (1952).63. Id. § 2-708.1. N.D. Rev. Code § 5f-0167 (1943) (Action allowed only when title has passed soas to give the buyer a property interest in the goods).2. N.D. Rev. Code § 51-0168 (1943) (when property in the goods has not passed).

Remedies of a Seller for Breach of Contract under the Uniform Commercial Code

https://commons.und.edu/cgi/viewcontent.cgi?article=3314&amp;context=ndlr

Remedies of a Seller for Breach of Contract under the Uniform Commercial Code

Abstract

Similar works

Full text

Available Versions

UND Scholarly Commons (University of North Dakota)