Chapter 21 Performance of Sales and Lease Contracts

Chapter 21 Performance of Sales and Lease Contracts © 2004 West Legal Studies in Business A Division of Thomson Learning 1

Introduction üSeller must transfer and deliver conforming goods. üBuyer must accept and pay for conforming goods. üIn the absence of an agreement between Seller and Buyer UCC Article 2 controls as set out below. © 2004 West Legal Studies in Business A Division of Thomson Learning 2

§ 1: Good Faith Requirement üGood Faith is the foundation of every UCC commercial contract. üGood faith means honesty in fact. üFor a merchant, it means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Merchants are held to a higher standard of care than non-merchants. © 2004 West Legal Studies in Business A Division of Thomson Learning 3

§ 2: Seller-Lessor Obligations üSeller has a duty to “tender” delivery of “conforming goods. ” üTender means “delivery” to agreed place: § § With reasonable notice. At a reasonable hour. In a reasonable manner. Exactly, unless otherwise agreed. © 2004 West Legal Studies in Business A Division of Thomson Learning 4

Place of Delivery--Non-Carriers üBuyer picks up at Seller’s place of business or, if Buyer has no place of business, then Buyer’s residence. üIf both parties know the goods are elsewhere (at a warehouse), then place of delivery is where the goods are. © 2004 West Legal Studies in Business A Division of Thomson Learning 5

Place of Delivery--Carriers üShipment contracts. Seller has a duty to: § Put goods into hands of independent carrier. § Make contract for transportation. § Obtain and promptly deliver or tender to the Buyer any documents necessary. § Promptly notify Buyer that shipment has been made. üDestination contracts. Seller has duty to: § Tender the goods at a reasonable hour and hold conforming goods at the Buyer’s disposal for a reasonable period of time. © 2004 West Legal Studies in Business A Division of Thomson Learning 6

The Perfect Tender Rule If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: § Accept the goods; § Reject the entire shipment; or § Accept part and reject part. © 2004 West Legal Studies in Business A Division of Thomson Learning 7

Exceptions to the Perfect Tender Rule Click on the Links Below üAgreement of the Parties. üCure. üSubstitution of Carriers. üInstallment contracts. üCommercial Impracticability. üDestruction of Identified goods. üPartial Performance. Proceed © 2004 West Legal Studies in Business A Division of Thomson Learning 8

§ 3: Buyer-Lessee Obligations üFurnish facilities reasonably suited for receipt of the goods. üMake payment at the time and place the Buyer receives the goods. § Credit has to be prearranged. • Credit period begins on the date of shipment. § Pay with cash, credit card, check. • But if Seller asks for cash, Seller has to give Buyer time to get cash. © 2004 West Legal Studies in Business A Division of Thomson Learning 9

Buyer’s Obligations Buyer has right to inspection before paying: § Costs of inspection borne by Buyer. § However, C. O. D. , C. I. F. and C&F give Buyer no right to inspect. © 2004 West Legal Studies in Business A Division of Thomson Learning 10

Acceptance ü Buyer can accept goods: § By words or conduct. § If Buyer had reasonable amount of time and failed to reject. § Buyer performs an act which indicates he thinks he is the owner. üPartial Acceptance. © 2004 West Legal Studies in Business A Division of Thomson Learning 11

Revocation of Acceptance üNotify Seller of breach. üRevoke only if substantial nonconformity; and § Buyer accepted on the reasonable assumption that the Seller would cure the non-conformity OR Buyer did not discover the nonconformity because defect was latent or hard to discover. © 2004 West Legal Studies in Business A Division of Thomson Learning 12

§ 4: Anticipatory Repudiation üParty communicates he will not perform by time of contract performance. üNon-breaching party may suspend performance and: § Treat the A. R. as material breach and pursue a remedy; or § Wait a reasonable time. üCase 21. 3: Banco International v. Goody’s Family Clothing (1999). © 2004 West Legal Studies in Business A Division of Thomson Learning 13

§ 5: International Contracts and Letters of Credit üParties. § Account: Buyer. § Issuer: Bank. § Beneficiary: Seller. üIssuer is bound to pay the beneficiary who has complied with the terms and conditions of the letter of credit, usually requiring a bill of lading to the issuer to prove shipment has been made. © 2004 West Legal Studies in Business A Division of Thomson Learning 14

Law on the Web üPace U. website on International Sale of Goods. üLegal Research Exercises on the Web. © 2004 West Legal Studies in Business A Division of Thomson Learning 15

Agreement of the Parties üParties agree that some defective goods will be acceptable. üParties agree that defective goods can be replaced or repaired within a certain time. Return © 2004 West Legal Studies in Business A Division of Thomson Learning 16

Seller’s Cure üSeller has the right to “Cure” (ship conforming goods to Buyer) if: § Agreed time of performance has not yet expired; or § If Seller had reasonable grounds to expect that Buyer would accept non-conforming goods, i. e. , these goods are better than goods ordered, or Buyer has accepted non-conforming goods in the past. Return © 2004 West Legal Studies in Business A Division of Thomson Learning 17

Substitution of Carriers If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. Return © 2004 West Legal Studies in Business A Division of Thomson Learning 18

Commercial Impracticability üOccurrence of an unforeseen contingency that makes performance impracticable. üNonoccurrence was a basic assumption on which the contract was made. üIf only partial impracticability, Seller must allocate what he/she has. üCase 21. 1: Maple Farms v. City School District Return of Elmira (1974). © 2004 West Legal Studies in Business A Division of Thomson Learning 19

Installment Contracts üInstallment Contracts can be rejected if: § installment is substantially non-conforming and can’t be cured. § non-conforming installment substantially impairs the entire contract. Return © 2004 West Legal Studies in Business A Division of Thomson Learning 20

Destruction of Goods üIf no fault of either party and it occurs üBefore risk passes to Buyer then üBoth Seller and Buyer are excused from performance. Return © 2004 West Legal Studies in Business A Division of Thomson Learning 21

Partial Performance üSometimes unforeseen event only partially affects Seller’s capacity to perform. üIn that event, Seller has duty to reasonably allocate any remaining production capacity to fulfilling contractual performance. üBuyer has the right to reject. üCase 21. 2: Kock Materials Co. v. Shore Slurry Return Seal, Inc. (2002). © 2004 West Legal Studies in Business A Division of Thomson Learning 22