Chapter 21 Performance of Sales and Lease Contracts

1. Chapter 21 Performance of Salesand Lease Contracts

2. Introduction • Seller must transfer and deliver conforming goods. • Buyer must accept and pay for conforming goods. • In the absence of an agreement between Seller and Buyer, UCC Article 2 controls as set out below.

3. §1: Good Faith Requirement • Good Faith is the foundation of every UCC commercial contract. • Good faith means honesty in fact. • For 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.

4. §2: Seller-Lessor Obligations • Seller has a duty to “tender” delivery of “conforming goods.” • Tender means “delivery” to agreed place: • With reasonable notice. • At a reasonable hour. • In a reasonable manner. • Exactly, unless otherwise agreed.

5. Place of Delivery--Non-Carriers • Buyer picks up at Seller’s place of business or, if Buyer has no place of business, then Buyer’s residence. • If both parties know the goods are elsewhere (at a warehouse), then place of delivery is where the goods are.

6. Place of Delivery--Carriers • Shipment 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. • Destination 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.

7. 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.

8. Exceptions to the Perfect Tender Rule Click on the Links Below • Agreement of the Parties. • Cure. • Substitution of Carriers. • Installment contracts. • Commercial Impracticability. • Destruction of Identified goods. • Partial Performance. Proceed

9. §3: Buyer-Lessee Obligations • Furnish facilities reasonably suited for receipt of the goods. • Make 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.

10. 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.

11. Acceptance • 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. • Partial Acceptance.

12. Revocation of Acceptance • Notify Seller of breach. • Revoke 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.

13. §4: Anticipatory Repudiation • Party communicates he will not perform by time of contract performance. • Nonbreaching party may suspend performance and: • Treat the A.R. as material breach and pursue a remedy; or • Wait a reasonable time. • Case 21.3:Banco International v. Goody’s Family Clothing (1999).

14. §5: International Contracts and Letters of Credit • Parties. • Account: Buyer. • Issuer: Bank. • Beneficiary: Seller. • Issuer 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.

15. Law on the Web • Pace U. website on International Sale of Goods. • Legal Research Exercises on the Web.

16. Agreement of the Parties • Parties agree that some defective goods will be acceptable. • Parties agree that defective goods can be replaced or repaired within a certain time. Return

17. Seller’s Cure • Seller 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

18. Substitution of Carriers If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. Return

19. Commercial Impracticability • Occurrence of an unforeseen contingency that makes performance impracticable. • Nonoccurrence was a basic assumption on which the contract was made. • If only partial impracticability, Seller must allocate what he/she has. • Case 21.1:Maple Farms v. City School District of Elmira (1974). Return

20. Installment Contracts • Installment Contracts can be rejected if: • installment is substantially non-conforming and can’t be cured. • non-conforming installment substantially impairs the entire contract. Return

21. Destruction of Goods • If no fault of either party and it occurs • Before risk passes to Buyer then • Both Seller and Buyer are excused from performance. Return

22. Partial Performance • Sometimes unforeseen event only partially affects Seller’s capacity to perform. • In that event, Seller has duty to reasonably allocate any remaining production capacity to fulfilling contractual performance. • Buyer has the right to reject. • Case 21.2:Kock Materials Co. v. Shore Slurry Seal, Inc. (2002). Return