Default and Remedies Clauses


Summary

These default and remedies clauses address various events that will constitute a default of a sales contract and available remedies upon an occurrence of a default. This template includes practical guidance and drafting notes. These clauses generally address the principal concern of a seller to receive payment for goods from a buyer, and that of the buyer to receive the contracted for goods. A sale of goods contract may limit or alter damages and remedies provided by Article 2 of the Uniform Commercial Code (UCC), subject to certain limitations. Parties can also agree to limit or alter the measure of recoverable damages, such as by limiting the buyer's remedies to return of the goods and repayment of the purchase price or to repair and replacement of nonconforming goods or parts. Consequential damages may be limited or excluded unless it would be unconscionable. The exclusion of such damages with respect to consumer goods for personal injury damages is presumed invalid; limitations regarding commercial damages are not. U.C.C. § 2-719. Note that there is a presumption under the UCC that clauses providing for remedies are cumulative and therefore are optional unless the parties agree that the subject clause will be exclusive. Accordingly, contract language that limits remedies must clearly state it is exclusive to overcome the presumption of cumulative remedies. Additionally, in transactions where the circumstances cause an exclusive or limited remedy to fail its essential purpose, the buyer then will be afforded the remedies available under the UCC. U.C.C. § 2-719(2). You should therefore ensure your client's agreement provides the buyer with some form of remedy, as the UCC emphasizes that it is the essence of sales contracts to provide at least a minimum adequate remedy. Any term that serves to limit the buyer's remedies in an unconscionable manner will be of no effect and the buyer will then be provided the remedies available under the UCC. For further guidance, see UCC Damages and Remedies, UCC Remedies for Buyer and Seller and Third-Party Rights, Mitigation of Damages in Sale of Goods Contracts, and Sale of Goods Agreements: Avoiding Common Pitfalls.