Author: Attorney Desk Reference Manual
Last updated: May 2003
The buyers have two possible responses to a seller’s breach of contract for the sale of goods. they can either:
There are two cancellation remedies (rejection and revocation of acceptance) and they are mutually exclusive.
Rejection is only available before acceptance of the goods. Revocation is available only after acceptance.
Of the two cancellation remedies, rejection is the more generous to the buyer. First, it is available for any breach of warranty, in contrast to revocation which can be used only when the breach substantially impairs the value of the goods to the buyer. Second, the burden of proof also differs. For rejection, the burden is on the seller to show no breach. For revocation, the burden is on the buyer. Third, to revoke acceptance, the buyer must show that s/he accepted the goods either in justifiable ignorance of the nonconformity or knowing of it, but reasonably believing it would be fixed. This requirement does not apply to rejection.
The right to rejection or revocation is dependent upon several possible restrictions, noted below. The buyers also have remedies, discussed below, for the seller’s breach if they decide to keep and use the goods.
Cancellation, whether by rejection or revocation, is designed as a private self-help remedy. It is exercised by the buyer notifying the seller and making the goods available to the seller to pick up. If all goes well, the seller takes back the goods, returns any money paid toward the purchase price and cancels the buyer’s outstanding obligations. If the seller fails to do any of these things, the buyer may seek judicial relief under the Code in the form of damages.
810 ILCS 5/2-711 entitles the buyer to the return of all money paid toward the purchase price. Incidental and consequential damages (specified in 810 ILCS 5/2-715) are also available. Incidental damages include expenses reasonably incurred in inspection, receipt, transportation, and care/custody of rejected goods and any other reasonable expense incident to any delay or breach. Consequential damages include certain losses resulting from the particular needs of the buyer as well as injuries to the person or property proximately resulting from any breach of warranty.
The canceling buyer may also recover any extra cost incurred buying substitute goods. This remedy is called "cover" and is expressly authorized by 810 ILCS 5/2-712. The buyer is not penalized for failing to cover and may recover damages for increased cost of the goods under 810 ILCS 5/2-713.
If the seller refuses to return any payments made by the buyer, the buyer has a security interest in the goods to cover such payments and may sell the goods and keep the proceeds necessary to reimburse him. 810 ILCS 5/2-711(3).
The seller’s refusal to discharge its UCC duties of recognizing the buyer’s rightful rejection or revocation may also be actionable under the Consumer Fraud and Deceptive Business Practices Act (CFDBP).
Remember that rejection is available only before acceptance (revocation only after acceptance). The key is whether the buyer accepted the goods. Acceptance is a term of art under the Code. Essentially, it occurs when the buyer, by words, conduct, or silence, manifests an intention to accept the goods.
810 ILCS 5/2-606 provides three methods by which the buyer can manifest the intent to accept:
Important: Buyers do not accept goods merely because they have obtained title to them, have paid for them, or have possession of the goods.
Very Important: To properly reject the buyer must not only inspect and reject within a reasonable time, but must also give "seasonable" notification, that is notification of the rejection to the seller within the time specified in the contract or, otherwise within a reasonable time. There is no prescribed method of notification in the Code, but merely returning the goods to the seller is insufficient.
Conditions for revocation of acceptance. Once buyers have accepted the goods, they can cancel the sale only by revoking that acceptance. 810 ILCS 5/2-608 establishes five conditions:
Generally, the buyer has four options:
810 ILCS 5/2-602(2) makes it clear that buyer has no duty to return the goods. The goods need only be held for a "reasonable" time, using reasonable care. The buyer does not even have this minor duty, and the buyer should not let the seller pick up the goods, if any payments were made toward the price or if any expense was incurred in inspecting, transporting or holding the goods. That gives rise to a buyer security interest. Holding the goods does not mean using them. Using them may constitute a new acceptance.
This may be the best option for reducing the inconvenience or expense of holding the goods with reasonable care or selling them. On the other hand, for the buyer who has paid money to the seller or incurred expenses, returning the goods to the seller may be unwise because it eliminates the only leverage the buyer has to recover out of pocket loss without a lawsuit.
The buyer can exercise this option where he has obtained a security interest in the goods, which usually arises when the seller fails to return a payment made by the buyer. Resale must follow the procedures in 810 ILCS 5/2-706 and is risky because a court might find the resale requirements were not met. On the other hand, resale has advantages because it allows the buyer to receive cash in hand soon after cancellation. Holding the goods requires waiting until litigation is final.
Not recommended because it is inconsistent with an intent to cancel and may constitute a new acceptance.
The buyer who decides not to cancel, but chooses to keep and use the goods, or who fails to properly cancel the contract, is liable for the purchase price. However, such a buyer is still entitled to damages to make him/her whole. Such damages include:
There are three major limits on the buyer’s right to any Article 2 remedies. They are as follows:
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