Fundamentals of Business Law 6th Edition Chapter 16 Performance and Breach of Sales and Lease Contracts

Performance Obligations 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.

Obligations of the Seller (Lessor) 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.

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.

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.

Exceptions to the Perfect Tender Rule Click on the Links Below Agreement of the Parties. Cure. Substitution of Carriers. Installment contracts. Commercial Impracticability. Partial Performance. Destruction of Identified Goods. Assurance and Cooperation. Proceed

Obligations of the Buyer (Lessee) Furnish facilities reasonably suited for receipt of the goods. 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.

Obligations of the Buyer (Lessee) Buyer has right to inspect before paying: Costs of inspection borne by Buyer. However, C.O.D., C.I.F. and C&F give Buyer no right to inspect.

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.

Anticipatory Repudiation Party communicates he will not perform by time of contract performance. Non-breaching party may suspend performance and: Treat the A.R. as material breach and pursue a remedy; or Wait a reasonable time.

Remedies Buyer Seller End If Goods in Buyer’s Possession Click on the Links Below Buyer Seller End If Goods in Buyer’s Possession If Seller delivers non-conforming goods If Goods in Transit If Goods in Seller’s Possession

Seller: Goods in Seller’s Possession Seller may withhold delivery of the goods: If material breach by Buyer, Seller can withhold delivery of all goods. If non-material breach, Seller can withhold delivery of this installment. Seller can withhold delivery of all goods if Buyer is insolvent. Next

Seller: Goods in Seller’s Possession Seller may rescind the contract. Seller may identify the goods to the contract. Seller may sell raw materials for scrap or finish production. Next

Seller: Goods in Seller’s Possession Seller may resell the goods; and Recover damages: the difference between the contract price and the resale price + incidental damages+ damages = the market price at the time & place of tender + incidental damages - expenses saved. If No Damages, Seller can sue for lost profits. Next

Seller: Goods in Seller’s Possession Seller may sue Buyer for breach of contract. Recover Damages = the market price at the time & place of tender + incidental damages. if there are no damages, Seller can sue for lost profits. Return

Seller: Goods in Transit Goods are “in transit” when Seller has tendered goods to Carrier. Goods are in transit until: Buyer is given negotiable document of title to goods. Buyer is given non-negotiable document of title or Bailee has acknowledged Buyer’s right to have the goods. Buyer has had a reasonable time to pick up the goods. Next

Seller: Goods in Transit Seller has the right to stop the goods in transit if: Buyer is insolvent - Seller can stop entire shipment of goods. Buyer is in breach - Seller may stop a whole truckload or whole container. Return

Seller: Goods in Buyer’s Possession Seller may sue for the purchase price. Seller may also sue Buyer if goods were “specially-made” which Seller cannot resell. Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer. Seller can reclaim goods received by an insolvent Buyer if demand made within 10 days of receipt. Return

Buyer: Goods in Buyer’s Possession Buyer Wants Goods Specific performance or replevin. Recover goods from Seller if Seller becomes insolvent within 10 days after receiving first payment. Buyer Does Not Want Goods Rescind contract. Cover or do not cover and sue for breach of contract. Not if in bankruptcy time the Buyer learned of the breach at the place were the Seller was supposed t o deliver the goods Return

Buyer: Seller Delivers Nonconforming Goods If Seller does not make perfect tender Buyer has the right to reject all or part of goods. Buyer must timely notify Seller of rejection and reasons and follow Seller’s directions. Buyer is entitled to commission for selling perishable goods. Buyer may store the goods and retain a security interest in the goods for his costs. Next

Buyer: Seller Delivers Nonconforming Goods If Buyer has accepted non-conforming goods, she may: Sue for breach of warranty. Sue for ordinary damages. Deduct damages from purchase price. Case 16.3 China National Metal Products Import/Export Co v. Apex Digital Inc. (2001). Case 16.4 Yates v. Pitman Manufacturing Inc. (1999). difference between what was warranted and what Buyer got Next

Revocation of Acceptance Buyer must notify Seller of breach. Revocation 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. Return

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

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

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

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 16.1 Maple Farms v. City School District of Elmira (1974). Return

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

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

Partial Performance Sometimes an 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. Return

Assurance & Cooperation If one party has reasonable grounds to believe the other will not perform, he is entitled to assurance of performance. Party can ‘suspend’ performance until assurance is received. Case 16.2 Koch Materials Co. v. Shore Slurry Seal, Inc. (2002). Cooperation: Parties have a mutual duty to cooperate. If one does not, the other can ‘suspend’ performance. Return

Limitations Parties can elect or limit UCC remedies in the contract. Contracts can exclude/include consequential damages that are not unconscionable. Cause of action expires FOUR years after breach of contract.