Remedies under the Commercial Code

California’s Commercial Code, in Division 2, Chapter 7, deals with remedies involving sales. Section 2701 specifies that remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this division.

Section 2702 states that, where the seller discovers the buyer to be insolvent, he may refuse delivery except for cash including payment for all goods delivered under the contract, and stop delivery. Where the seller discovers that the buyer has received goods on credit while insolvent, he may reclaim the goods upon demand made within 10 days after the receipt.

Section 2703 says that, 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 take one of six specified actions.

Section 2704 provides that an aggrieved seller under the preceding section may either identify to the contract conforming goods not already identified, if at the time he learned of the breach they are in his possession or control; or treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished.

Where the goods are unfinished, an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.

Section 2705 authorizes the seller to stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods.

As against the buyer, the seller may stop delivery until one of four occurrences takes place. To stop delivery, the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods. After the notification, the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages.

If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of possession or control of the document. A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

Section 2706 authorizes the seller to resell the goods concerned or the undelivered balance. Where the resale is made in good faith and in a commercially reasonable manner, the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this division, but less expenses saved in consequence of the buyer’s breach.

Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell. Where the resale is at public sale, there are four specified conditions that must occur. A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. The seller is not accountable to the buyer for any profit made on any resale. 

Section 2707 defines the term “person in the position of a seller.” A person in the position of a seller may as provided in this division withhold or stop delivery and resell and recover incidental damages.

Section 2708 provides that the measure of damages for nonacceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages, but less expenses saved in consequence of the buyer’s breach.

Section 2709 states that, when the buyer fails to pay the price as it becomes due, the seller may recover, together with any incidental damages under the next section, the price of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and, of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

Section 2710 provides that incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers’ breach, in connection with return or resale of the goods or otherwise resulting from the breach.

Section 2711 specifies that, where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance, 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 and whether or not he has done so may in addition to recovering so much of the price as has been paid can “cover” and have damages or recover damages for non-delivery.

Section 2712 states that, after a breach within the preceding section, the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. In addition, the buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages.

Section 2713 provides that the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this division, but less expenses saved in consequence of the seller’s breach.

Section 2714 says that, where the buyer has accepted goods and given notification he or she may recover, as damages for any nonconformity of tender, the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner that is reasonable. The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

Section 2715 provides incidental damages resulting from the seller’s breach include 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. Consequential damages resulting from the seller’s breach include two specified items.

Section 2716 allows specific performance to be decreed where the goods are unique or in other proper circumstances. The decree for specific performance may include terms and conditions as to payment of the price, damages, or other relief as the court may deem just. And, the buyer has a right of replevin for goods identified to the contract if, after reasonable effort, he or she is unable to effect cover for such goods.

Section 2717 authorizes the buyer on notifying the seller of his intention to do so to deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

Section 2718 says that damages for breach by either party may be liquidated in the agreement. If the agreement provides for liquidation of damages, and the provision does not comply with the Civil Code, remedy may be had as provided in this division.

Where the seller justifiably withholds delivery of goods because of the buyer’s breach, the buyer is entitled to restitution of any amount by which the sum of his or her payments exceeds the amount to which the seller is entitled by virtue of terms liquidating the seller’s damages or, in the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.

The buyer’s right to restitution is subject to offset to the extent that the seller establishes a right to recover damages and the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.

Section 2719 allows an agreement to provide for remedies that limit or alter the measure of damages recoverable under this division, as by limiting the buyer’s remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this code.

Section 2720 states that expressions of “cancellation” or “rescission” of the contract or the like are not to be construed as a renunciation or discharge of any claim in damages for an antecedent breach.

Section 2721 says that remedies for material misrepresentation or fraud include all remedies available under this division for nonfraudulent breach. Neither rescission nor a claim for rescission of the contract for sale nor rejection or return of the goods bar or are deemed inconsistent with a claim for damages or other remedy.

Section 2722 provides that, where a third party deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract, a right of action against the third party is in either party to the contract for sale who has title to or a security interest or a special property or an insurable interest in the goods; and, if the goods have been destroyed or converted a right of action is also in the party who either bore the risk of loss under the contract for sale or has since the injury assumed that risk. If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the contract for sale and there is no arrangement between them for disposition of the recovery, his suit or settlement is, subject to his own interest, as a fiduciary for the other party to the contract; and, either party may with the consent of the other sue for the benefit of whom it may concern.

Section 2723 states that, if an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price are determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.

If evidence of a price prevailing at the times or places described in this division is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place.

Section 2724 states that, whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market are admissible in evidence. The circumstances of the preparation of a report may be shown to affect its weight but not its admissibility.

Section 2725 says that an action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement, the parties may reduce the period of limitation to not less than one year but may not extend it. 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.