Question

Assume that Seller does in fact tender delivery one week late. What will be the liability of the Seller to the buyer?

1) Seller will not be liable to buyer if the one-week delay is not a substantial impairment in the value of the contract.
2) Seller will not be liable to buyer if the one-week delay is not a material breach.
3) Seller may be liable for damages but the contract will remain in place, unless the delay is a material breach or results in substantial impairment.
4) Regardless of whether the delay substantially impairs the value of the contract, Buyer may tell the Seller that Buyer does not want the goods and that the contract is off.

Answer 1

If the seller's late delivery substantially impairs the value of the contract, the buyer can likely reject the goods and cancel the contract. The seller's liability may include refunding the purchase or covering additional losses. To reassure buyers with imperfect information, sellers can offer warranties and service contracts.

Step-by-step explanation:

When a seller tenders delivery one week late, they enter into potential breach of contract territory depending on the specifics of the agreement. If the contract allows for late delivery without substantial impairment to the value, then the buyer may not be able to cancel the contract solely on the basis of the delay. However, if the delay indeed substantially impairs the value of the contract to the buyer, the buyer would typically have the right to reject the goods and treat the contract as off. Liability of the Seller could range from having to refund the buyer, to being responsible for any losses the buyer incurred as a consequence of the late delivery.

In the face of imperfect information, a seller might reassure a potential buyer by offering warranties or service contracts. For instance, a warranty is a promise to fix or replace the product within a certain time frame should issues arise. Additionally, service contracts can be purchased by the buyer to cover potential problems over a set period. These offerings can mitigate the perceived risk by the buyer and facilitate the agreement on price.