UCC 2-718: Liquidation or Limitation of Damages; Deposits

Overview

• Purpose: Addresses the conditions under which damages for breach of contract may be liquidated or limited in a sales agreement.

Key Points

1. Liquidation of Damages (Subsection 1)

• Conditions: Damages can be liquidated in the agreement if:
  • The amount is reasonable in relation to the anticipated or actual harm.
  • Takes into account the difficulties of loss proof and the feasibility of obtaining an adequate remedy.
• Limitation: Terms fixing unreasonably large liquidated damages are void as a penalty.

2. Buyer's Restitution (Subsection 2)

• Entitlement: If the seller justifiably withholds delivery due to buyer’s breach, the buyer may get restitution of payments exceeding:
  • (a) The amount to which the seller is entitled per liquidated damage terms, or
  • (b) 20% of the value of the total performance or $500, whichever is smaller, if no terms exist.

3. Offset against Buyer's Restitution (Subsection 3)

• Seller's Claims: Seller can offset buyer's restitution if:
  • (a) Seller has a right to recover damages under other provisions of the Article.
  • (b) The buyer received any benefits from the contract.

4. Payment in Goods (Subsection 4)

• Treatment of Goods: Goods received by the seller as payment are treated as payments per subsection 2.
• Resale Conditions: If the seller knows of the breach before reselling the goods, the resale must comply with conditions in Section 2-706 for resale by an aggrieved seller.

Important References

• Section 2-706: Details conditions for resale by an aggrieved seller.
• Related Definitions: Agreement, Seller, Buyer, Goods, Contract.

Implications

• Contracts: Ensures fairness in liquidating damages and provides mechanisms for restitution and offset.
• Enforcement: Prevents abuse of power in setting liquidated damages by voiding unreasonable terms.