Chapter 28: Obligations and Performance

Good Faith Every sales contract imposes an obligation of good faith in its performance. Good faith means honesty in fact in the conduct or transaction concerned. For merchants, the UCC imposes the additional requirement of observing “reasonable commercial standards of fair dealing in the trade.”

Repudiation A buyer’s or a seller’s refusal to perform a contract is called a repudiation. A repudiation made in advance of the time for performance is called an anticipatory repudiation. Repudiation is a breach of the contract.

Assurance of Performance If either party to a contract feels insecure about the performance of the other, that party may demand in writing adequate assurance of performance. If that assurance is not given, the demanding party may treat the contract as repudiated.

Seller’s Duties The seller has a duty to deliver the goods in accordance with the terms of the contract. The time, manner and place of delivery are usually a part of the contract, or are determined by the usual course of dealing in that business. In any case, this duty requires that the seller permit the transfer of possession of the goods to the buyer.

Buyer’s Rights With the exception of COD contracts, the buyer has the right to inspect the goods upon tender or delivery. Inspection includes the right to open cartons and conduct tests. If the inspection by the buyer reveals that the seller has tendered nonconforming goods, the buyer may reject them. Subject to certain limitations, the seller may then offer to replace the goods or cure the problems.

Buyer’s Duties The buyer has a duty to accept goods that conform to the contract, and refusal to do so is a breach of contract. The buyer is deemed to have accepted goods either expressly or by implication through his conduct or by lapse of time. The buyer must pay for accepted goods in accordance with the contract.

Buyer’s Right of Rejection The buyer can reject goods in commercial units, accept the goods and collect damages for their problems, or reject the full contract shipment. The buyer must give notice of rejection to the seller and cannot do anything with the goods that would be inconsistent with the seller’s ownership rights.

Revocation of Acceptance Even following acceptance, the buyer may revoke that acceptance if: the problems with the goods substantially impair their value and the problems were not easily discoverable, or the buyer kept the goods based on the seller’s promises to repair them and make them whole.

Commercial Impracticability Performance can be excused on the grounds of commercial impracticability. The seller must show objective difficulties that create more than cost increases.

Rights and Duties in a Contract Buyer Seller Contract Performance Repudiation Breach of Contract; (Buyer may make substitute contract & recover damages) Delivery Right to Inspect Accept* Reject Correct performance if time allows Pay Revoke Acceptance (only in some cases) *May accept all, accept commercial units, or accept on condition of seller making repair or paying damages for nonconforming goods.