© 2004 West Legal Studies in Business A Division of Thomson Learning 1 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 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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 8 Click on the Links Below Exceptions to the Perfect Tender Rule Agreement of the Parties. Agreement of the Parties Cure. Cure Substitution of Carriers. Substitution of Carriers Installment contracts. Installment contracts Commercial Impracticability. Commercial Impracticability Destruction of Identified goods. Destruction of Identified goods Partial Performance. Proceed  Partial Performance Agreement of the Parties. Agreement of the Parties Cure. Cure Substitution of Carriers. Substitution of Carriers Installment contracts. Installment contracts Commercial Impracticability. Commercial Impracticability Destruction of Identified goods. Destruction of Identified goods Partial Performance. Proceed  Partial Performance

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning 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). 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).

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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.

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

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. Parties agree that some defective goods will be acceptable. Parties 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 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. 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

© 2004 West Legal Studies in Business A Division of Thomson Learning 18 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 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). 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

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. If no fault of either party and it occurs Before risk passes to Buyer then Both Seller and Buyer are excused from performance. Return

© 2004 West Legal Studies in Business A Division of Thomson Learning 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). 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