What Remedies Does a Seller Have When a Buyer Breaches a Sales Contract?

Contracts are often used in small-business transactions for the purchase of equipment and inventory. A business may also use a contract when it sells goods or services, especially if delivery is at a later date or the purchase is financed. Sometimes buyers breach their contracts. Understanding the remedies available to a business injured by a breached sales contract will help the business's owners make sound decisions about pursuing damages.

A seller must first establish the legal enforceability of the contract. The first requirement is an offer. Second, the offer must be accepted. The third requirement is "consideration" -- something of value given in exchange for the performance required or the promise of performance. Fourth, the contracting parties must have the legal capacity to contract. Finally, the contract must relate to a legal purpose.

Contracts for certain sales of goods are subject to Article 2 of the Uniform Commercial Code. The provisions of Article 2 do not affect statutes that govern sales to consumers and certain other classes of buyers but do generally apply to business-to-business sales. For example, if a business purchases inventory, such as a refrigerator, the sale may be subject to the UCC; if a consumer purchases the same refrigerator from the business, it will not be subject to the UCC if it conflicts with laws applicable to consumer sales, such as consumer protection laws.

Common law remedies for a breach of contract include compensatory damages, consequential damages and reliance damages. Compensatory damages compensate the complaining party for the economic loss suffered by the breach. For example, if a business contracted to provide $100 worth of services, and the buyer didn't use the service, compensatory damages would be $100. Consequential damages arise from the harmed party's special circumstances and are rarely awarded in contract lawsuits. An example would be a specially manufactured part for a factory that is defective and results in a production shutdown and loss of profits. Reliance damages are damages that have been suffered because of a reasonable reliance on the promise, such as forgoing another sale that could have been made. In rare circumstances, a court may order specific performance where payment of money is insufficient to remedy the breach. Common examples include the sale of real estate or one-of-a-kind art.

In addition to common law damages, the seller may pursue damages under the UCC if they apply. Article 2 of the UCC provides for many remedies. A common action involves damages to the seller for the buyer's nonacceptance of goods. If the buyer refuses to accept the goods, the seller may recover as damages the difference between the contract price and the market price at the time the goods were tendered for delivery plus any consequential or incidental damages -- for example, charges, expenses and commissions -- minus any savings from expenses not incurred.