Topic: Remedies for Breach of Sales and Lease Contracts
Problem 1: Legal Issue:
Issue: Disney made a contract with Hanes to make 5,000 Mickey Mouse T-shirts and accepted the products upon delivery. During the inspection, Disney discovers that 100 of the shirts have a minor defect and will have to be discounted to the customers. If Disney decides to keep all 5,000 shirts, what are the remedies for the company?
Problem 2.
Why does this topic apply to your workplace? Disney is involved in purchasing variety of products for their gift shops from wholesalers. Disney needs to understand the numerous remedies available as a buyer when the seller breaches the contract or delivers damaged goods.
Problem 3. IRAC Analysis
Issue: What are the remedies for Disney when the company accepted the goods from the seller and discovers that there were some nonconforming goods?
Rule- Revocation of Acceptance: The buyer did not discover the nonconformity before acceptance, either because it was difficult to discover before acceptance or because assurances made by the seller that the goods were conforming kept the buyer from inspecting the goods. Revocation is not effective until notice is given to the seller. Once acceptance is revoked, the buyer can pursue remedies. (Cite: West Law p. 390.)
Rule- Right to Recover Damages for Accepted Goods: A buyer or lessee who has accepted non-conforming goods may also keep the goods and recover any loss “resulting in the ordinary course of events… as determined in any manner which is reasonable” [UCC 2-714, 2A-519(3)] The buyer must notify the seller of breach within a reasonable time after the defect was discovered (Cite: West Law p. 390.)
Application: Disney must inform the seller as soon as possible regarding the defected products. Disney may keep the T-shirts shipped by Hanes as well as the nonconforming shirts. In addition, Disney may sue for breach of contract or subtract the amount of damages to the purchase price.
Conclusion: The remedies for accepting nonconforming goods are to inform the seller of the defects in a reasonable amount of time. In addition, Disney may keep all the goods and be compensated by the seller for any losses.
Problem 4. Appropriate management response to the situation to limit legal liability.
Disney should not take the word of the seller that the goods sold to Disney have no defects. Therefore, Disney should thoroughly inspect the goods before accepting the products so that the company can save time from any calamity in the future. In addition, the company should sign an agreement with the seller to accept the goods under the provision that they give Disney 5 days to inspect the goods to fully accept the deal.
Problem 5. Preventative measures that management can take to limit liability in the future. Give citations for legal rules that may limit liability.
A buyer can expressly provide in the contract for remedies in addition to those provided in the UCC. They can also specify remedies in lieu of those provided in the UCC, or they can change the measure of damages (Cite: West Law p. 391.) IN certain situations, buyers can protect themselves by obtaining cover; by buying or leasing substitute goods for those that were due under the sales contract (Cite: West Law p. 387.)
Problem 6. Explain the action that management can take to apply the liability limiting rules to the situation.