18.3: Remedies

LEARNING OBJECTIVES

1. Understand what purpose remedies serve under the UCC.
2. Be able to see when the parties’ agreements as to limited remedies fail under the UCC.
3. Recognize what the seller’s remedies are.
4. Recognize what the buyer’s remedies are.

Remedies in General

General Policy of the UCC

The Uniform Commercial Code (UCC) follows a broad principle of fairness: remedies should put the aggrieved party in as good a position as if the other party had fully performed. In other words, the goal is to make the injured party “whole,” as though there had been a timely delivery of conforming goods.

The UCC emphasizes liberal construction of its provisions to achieve this policy whenever possible. Accordingly, it provides an array of remedies:

• For the seller when the buyer breaches (e.g., refusing delivery or failing to pay).
• For the buyer when the seller breaches (e.g., failing to deliver, delivering late, or delivering nonconforming goods).

These remedies are designed to be flexible, recognizing the diverse realities of commercial practice.

General Policy of the CISG

The United Nations Convention on Contracts for the International Sale of Goods (CISG) articulates a similar policy in Article 74:

“Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.”

Thus, like the UCC, the CISG aims to make the injured party whole—but it also imposes a foreseeability limit on damages, echoing the rule in Hadley v. Baxendale from common law contract principles.

Contractual Limits on Remedies

The UCC strongly favors freedom of contract. Parties are generally free to structure not only the details of performance but also the remedies available in case of breach. As long as the agreement is not unconscionable, courts will enforce the parties’ choices (UCC §§ 2-719(1), 2A-503(1)).

Limiting Remedies

The parties may expressly limit remedies. A common contractual clause might read:

“Seller’s sole obligation in the event goods are deemed defective by the seller is to replace a like quantity of nondefective goods.”

Under UCC § 2-719(1)(b) and UCC § 2A-503(2), such a clause is enforceable unless it expressly states that it is the exclusive remedy; otherwise, it is optional and does not bar other UCC remedies.

The Baseline Rule

Despite this freedom, the UCC insists on one baseline principle: every sales contract must provide a “fair quantum of remedy” for breach. As the official comment explains, if parties intend to make a valid sales contract under the UCC, they cannot eliminate remedies entirely.

Three Important Limits on Freedom to Restrict Remedies

1. Failure of Essential Purpose
   If the agreed-upon remedy fails or proves ineffective, the UCC’s default remedies apply instead (UCC §§ 2-719(2), 2A-503(2)).

   • Example: A contract limits the seller’s obligation to replacing defective goods. If repeated replacements fail to fix the defect, the limitation “fails of its essential purpose,” and the buyer may pursue broader UCC remedies such as damages.

2. Consequential Damages
   Consequential damages (such as lost profits) may be limited or excluded by agreement, except when the limitation would be unconscionable (UCC §§ 2-719(3), 2A-503(2)).

   • In consumer contracts, a limitation of damages for personal injury is prima facie unconscionable.
   • In commercial contracts, however, limitations on consequential damages are usually permissible.

3. Liquidated Damages
   The parties may agree in advance to liquidated damages—a set sum or formula for damages upon breach—if the amount is reasonable in light of:

   • The anticipated or actual harm caused by the breach,
   • The difficulty of proving actual damages, and
   • The inconvenience or nonfeasibility of obtaining another adequate remedy (UCC § 2-718).

   An unreasonably large amount is void as a penalty.

   Leases: The rule is slightly different under UCC § 2A-504(1), which allows liquidated damages “at an amount or by a formula that is reasonable in light of the then anticipated harm caused” by the breach—omitting the other considerations listed for sales contracts.

Statute of Limitations

The UCC sets a four-year statute of limitations for breach of any sales contract (UCC § 2-725). The parties may agree to shorten this period to no less than one year, but they may not extend it beyond four years.

• Example: A buyer and seller may contractually agree that any lawsuit for breach must be brought within two years of delivery, but they cannot agree to allow claims after five years.

For leases, UCC § 2A-506(1) establishes a similar four-year limitation but does not prohibit parties from agreeing to extend the period.

When Does the Cause of Action Accrue?

Under UCC § 2-725(2), the cause of action accrues when the breach occurs—regardless of whether the aggrieved party knows of the breach.

• General Rule: A breach of warranty occurs when tender of delivery is made.
• Exception (Future Performance): If a warranty explicitly extends to future performance (for example, a five-year warranty on an appliance), and the defect is not discoverable until later, the statute of limitations begins to run when the breach is or should have been discovered.

Example 1: A seller delivers machinery on June 1, 2024. The statute of limitations begins on that date, even if the buyer does not discover the defect until June 2026. The latest the buyer could sue is June 2028, unless the warranty explicitly covered future performance.

Example 2: A refrigerator sold with a five-year warranty against compressor failure develops a defect in year four. The statute begins to run at the time of failure (discovery), not at the time of original delivery.

Article 2A-506(2) is similar to 2-725(2).

Seller’s Remedies: Article 2 in General

When the buyer defaults, UCC § 2-703 provides the seller with a broad menu of remedies. Buyer defaults may take the form of:

• Wrongful rejection of goods,
• Revocation of acceptance,
• Failure to make payment when due, or
• Repudiation of the contract (as to part or all of the goods).

In such cases, with respect to the goods directly affected—and if the breach is of the whole contract, with respect to the entire undelivered balance—the aggrieved seller may:

1. Withhold delivery of the goods.
2. Stop delivery of goods in the hands of a bailee or carrier.
3. Identify goods to the contract if not already identified.
4. Reclaim goods if the buyer is insolvent.
5. Resell the goods and recover damages.
6. Recover damages for non-acceptance or repudiation.
7. Recover the price in a proper case.
8. Cancel the contract.

These remedies fall into three categories:

• Control over the goods (withholding, stopping delivery, identifying goods, reclaiming).
• Rights to money damages (resale damages, damages for non-acceptance or repudiation, recovery of the price).
• Contract termination (cancellation).

CISG Comparison

The CISG provides similar protections. Under Article 61 and following, if the buyer fails to perform obligations, the seller may:

• Require the buyer to pay the price.
• Fix an additional reasonable time for the buyer to perform. During this period, the seller may not resort to other remedies unless the buyer indicates he will not perform.
• Declare the contract avoided if the buyer’s failure amounts to a fundamental breach or if the buyer fails to perform within the additional period granted.
• Recover damages for losses caused by the breach.

The CISG’s framework emphasizes good faith and notice by requiring the seller to give the buyer an opportunity to cure before pursuing more drastic remedies, unless the breach is fundamental.

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Example: Howard and Bunker

To illustrate how the UCC’s remedies apply, consider this scenario:

• Seller (Howard, Los Angeles): Agrees to sell 100 prints of a Pieter Bruegel painting, plus the original.
• Buyer (Bunker, Dallas): Agrees to purchase the goods.
• Status of goods:
  • 25 prints already delivered to Bunker.
  • 25 prints en route by common carrier.
  • 25 prints completed but not yet shipped.
  • 25 prints still in production.
  • The original painting is hanging in Howard’s living room.

In the sections that follow, we will examine Howard’s remedies if Bunker breaches the contract—including remedies tied to insolvency.

Remedies on Breach on Buyer's Breach

When a buyer wrongfully rejects goods, revokes acceptance, fails to make payment, or repudiates the contract, the UCC provides the seller with a cumulative set of remedies (UCC §§ 2-703, 2A-523). The seller does not need to elect only one remedy; multiple remedies may be pursued together as commercially appropriate.

Using our example: Howard (Los Angeles) contracts to sell 100 prints and an original Bruegel painting to Bunker (Dallas). Bunker repudiates by e-mail, refusing to pay or accept delivery. Here are Howard’s remedies:

Withhold Further Delivery

Howard may refuse to ship the 25 prints already completed but not yet dispatched.

Stop Delivery

Howard may instruct the carrier to stop delivery of the 25 prints currently en route.

• If Bunker is insolvent, Howard may stop delivery of any shipment with a bailee or carrier.
• If Bunker is solvent, Howard may stop only bulk shipments (carload, truckload, planeload, etc.) to avoid undue burden on carriers.

Identify Goods to the Contract

Howard may “identify” specific goods as those intended for the contract, even if they were not specified earlier (UCC § 2-704).

• He could designate 100 of his 500 prints as the contracted goods.
• He may also complete the final 25 prints still in production if, in his reasonable commercial judgment, doing so will allow resale and minimize losses.

Resell the Goods

Howard may resell the 75 prints in his possession plus the original painting. If resale is done in good faith and in a commercially reasonable manner (UCC § 2-706), Howard may recover:

• The difference between the resale price and the contract price,
• Plus incidental damages,
• Less any expenses saved (e.g., avoided shipping).

Example: If the contract price was $100 per print plus $10,000 for the original, but resale brings only $75 per print and $8,000 for the original, Howard may recover the shortfall plus incidental expenses.

Resale may be public (auction) or private. If public, Howard must notify Bunker (unless goods are perishable), make the goods available for inspection, and permit Bunker to bid.

Recover Damages (Market Price Differential)

Alternatively, Howard may recover damages equal to the difference between the market price at the time and place of tender and the contract price, plus incidental damages, less expenses saved (UCC § 2-708(1)).

Recover Lost Profits

If resale or market damages do not make Howard whole, he may recover lost profits (UCC § 2-708(2)). This is especially important for lost-volume sellers—sellers who could have made the resale in addition to the original sale.

• Example: If Howard could easily sell more prints at the same price, the second sale does not substitute for Bunker’s default; Howard lost a volume sale and is entitled to the profit he would have made on Bunker’s purchase.

Recover the Price

Howard may sue for the price (UCC § 2-709) if:

• Bunker holds the 25 prints already delivered,
• The risk of loss has shifted to Bunker (e.g., if a shipment contract was agreed to and goods were destroyed en route), or
• No market exists for the prints, and resale is impracticable.

If the price is recovered, Howard must hold unsold goods for Bunker and credit any resale proceeds against the judgment.

Cancel the Contract

Finally, Howard may declare the contract cancelled (UCC § 2-703(f), 2A-524). Cancellation ends the seller’s obligations while preserving the right to damages for breach.

CISG Comparison

The CISG follows a similar framework (Articles 61–64), allowing the seller to:

• Require payment,
• Fix an additional period for the buyer to perform,
• Avoid the contract if the breach is fundamental or not cured in the additional period, and
• Recover damages.

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Seller’s Remedies on Buyer’s Insolvency

Even without breach, if the seller discovers the buyer is insolvent (UCC § 1-201(23)), additional protections apply (UCC § 2-702):

• Howard may refuse to deliver further goods unless Bunker pays cash, not only for future shipments but also for goods already delivered.
• If Howard discovers insolvency within 10 days of delivering the first 25 prints, he may demand to reclaim them.
  • If Bunker falsely represented solvency within three months prior to delivery, the 10-day limit does not apply.
• Reclamation is limited: Howard cannot reclaim goods that Bunker has already resold to a good-faith purchaser.

In leases: Because the lessor retains title, repossession is simpler. Under UCC § 2A-525(2), the lessor may repossess goods directly upon default.

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Buyer’s Remedies

Thus far, we have focused on the seller’s remedies. But what happens if Howard, the seller, breaches instead of Bunker? In that case, the UCC shifts the focus to the buyer’s remedies, which we explore in the next section.

In General

When the seller defaults, the UCC provides the buyer with a broad array of remedies. A seller may default by:

1. Repudiating the contract (announcing in advance that he will not perform),
2. Failing to deliver the goods, or
3. Delivering or tendering nonconforming goods.

Under UCC § 2-711, when the seller fails to deliver, repudiates, or when the buyer rightfully rejects or revokes acceptance, the buyer may:

1. Cancel the contract,
2. Recover any price already paid,
3. “Cover” by buying substitute goods and recover damages,
4. Recover damages for nondelivery,
5. Recover the goods if identified,
6. In proper cases, obtain specific performance or replevin,
7. Assert a security interest in rejected goods in his possession,
8. Recover damages for accepted nonconforming goods, plus
9. Recover incidental and consequential damages.

CISG Comparison

The CISG (Articles 45–51) provides similar remedies but with some differences in emphasis:

• The buyer may declare the contract avoided if the breach is fundamental.
• The buyer may require performance or delivery of substitute goods if nonconformity is substantial.
• The buyer may demand repair if reasonable.
• The buyer may fix an additional period of time for performance.
• In case of nonconforming delivery, the buyer may reduce the price proportionally.

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Remedies When Goods Are Not Received

Cancel the Contract

If goods have not been received (or if acceptance is rightfully revoked), the buyer may cancel the contract. Upon cancellation, the buyer is excused from further obligations (UCC §§ 2-711(1), 2-106).

Recover the Price Paid

Whether or not the buyer cancels, any portion of the purchase price already paid may be recovered.

Cover

The buyer may obtain substitute goods in good faith and in a commercially reasonable manner. Damages are the difference between the cover price and the contract price, plus incidental and consequential damages, less expenses saved (UCC § 2-712).

• Example: Bunker may purchase substitute Bruegel prints from another seller. If cover costs exceed Howard’s contract price, Bunker may recover the difference.

Sue for Damages for Nondelivery

If the buyer does not cover, he may still sue for nondelivery (UCC § 2-713). Damages equal the difference between the market price at the time the buyer learned of the breach and the contract price.

• Example: If Howard’s prints were contracted at $100 but the market price on breach day was $125, Bunker may recover $25 × 75 prints = $1,875. If the original painting, contracted at $10,000, had a market value of $15,000 at breach, Bunker could recover an additional $5,000.

Recover the Goods (Specific Performance and Replevin)

For unique goods (such as the original Bruegel painting), the buyer is entitled to specific performance—court-ordered delivery (UCC § 2-716(1)). This extends beyond traditional common law and applies in “other proper circumstances,” such as output or requirements contracts.

For identified goods not delivered, the buyer may also seek replevin if, after good-faith effort, cover is unavailable.

• Example: If Howard withholds the 25 prints already completed and identified, Bunker may bring an action for replevin to recover them.

Buyer’s Remedies on Seller’s Insolvency

If the seller becomes insolvent within 10 days of receiving payment, the buyer may recover goods already paid for (UCC § 2-502). In our scenario, if Howard were insolvent shortly after Bunker’s first installment, Bunker could reclaim both the prints and the painting, provided he tenders any unpaid balance.

Buyer’s Security Interest

If the buyer rightfully rejects or revokes acceptance, he has a security interest in goods already in his possession (UCC §§ 2-711(3), 2-706). The buyer may retain or resell them to recover amounts paid and reasonable expenses.

• Example: If Bunker holds 25 prints and Howard refuses reimbursement, Bunker may resell those prints and apply the proceeds against his claim.

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Remedies When Goods Are Accepted

When nonconforming goods are accepted (or revocation is unavailable), the buyer may still recover damages if he seasonably notifies the seller of the breach (UCC §§ 2-714, 2A-519).

Compensatory Damages

Damages cover any loss resulting from the nonconformity.

• Example: If Howard’s prints used inferior paper that deteriorated weeks later, Bunker may recover for the reduced value.

Consequential Damages

Consequential damages (UCC §§ 2-714(3), 2-715) include losses stemming from needs or requirements that the seller had reason to know.

• Example: If Howard used inferior ink that faded quickly, causing Bunker to lose resale contracts, Bunker may recover lost profits.
• Case Illustration: De La Hoya v. Slim’s Gun Shop (Cal. App. 1978): Buyer of a stolen handgun recovered attorney’s fees as consequential damages because the arrest for stolen property was foreseeable.

Incidental Damages

Incidental damages (UCC § 2-715) include reasonable expenses incurred due to breach, such as inspection, storage, transportation, or commissions for cover.

• Example: Bunker may recover the costs of storing rejected prints or arranging a substitute shipment.

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Key Distinction

• Goods Not Received: Remedies emphasize cancellation, cover, recovery of goods, and damages for nondelivery.
• Goods Accepted: Remedies focus on damages, both direct and consequential, plus incidental expenses.

KEY TAKEAWAY

Parties to a sales contract may shape their own remedies in case of breach. They may limit or exclude remedies, but the UCC requires that some meaningful remedy remain available. If liquidated damages are specified, they must be reasonable; an unreasonably large amount is void as a penalty.

If the contract is silent, the UCC provides default remedies:

• Seller’s Remedies
  • Contract: Cancel the contract.
  • Goods: Withhold or stop delivery, identify goods to the contract, or reclaim goods if the buyer is insolvent.
  • Money: Resell and recover damages, recover lost profits, or—in proper cases—recover the full price.
  • Cumulative: Unless inconsistent, these remedies may be used together. The goal is to put the nonbreaching seller in as good a position as if the contract had been performed.
• Buyer’s Remedies
  • Contract: Cancel the contract.
  • Goods: Claim a security interest in rejected goods, recover identified goods if the seller is insolvent, or seek replevin or specific performance.
  • Money: Recover payments already made, “cover” by buying substitutes and recover damages, or claim damages for nondelivery.
  • If goods are accepted: Recover damages for breach of warranty, including incidental and consequential damages.
  • Cumulative: These remedies, too, may be pursued together unless mutually exclusive.

The UCC Article on Leases (2A §§ 520–523) provides comparable remedies for lessors and lessees.

Bottom Line: The UCC remedies—whether for seller or buyer—are designed to be flexible, cumulative, and compensatory, aiming to place the injured party in the position they would have occupied had the contract been properly performed.

EXERCISES

1. What are the four things a breaching seller could do to cause the buyer grief, commercially speaking?
2. If the buyer breaches, what rights does the seller have in regard to the goods?
3. In regard to the money owed to her?
4. In regard to the continued existence of the contract?
5. What are the four things a breaching buyer could do to cause the seller grief, commercially speaking?
6. If the seller breaches, what rights does the buyer have in regard to the goods?
7. In regard to the money owed to him?
8. In regard to the continued existence of the contract?