Chapter 20 Performance of Sales and Lease Contracts

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Chapter 20 Performance of Sales and Lease
Contracts
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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.

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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.

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2 Sellers 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.

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Place of Delivery (Carriers) 1

• 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.

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Place of Delivery (Carriers) 2

• Destination contracts. Seller has duty to
• Tender the goods at a reasonable hour and hold
  conforming goods at the Buyers disposal for a
  reasonable period of time.

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Place of Delivery Non-Carriers

• Buyer picks up at Sellers place of business or,
  if Buyer has no place of business, then Buyers
  residence.
• If both parties know the goods are elsewhere (at
  a warehouse), then place of delivery is where the
  goods are.

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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.

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Exceptions to the Perfect Tender Rule(Click on
Each Link Below)

• Agreement of the Parties.
• Cure.
• Substitution of Carriers.
• Installment contracts.
• Commercial Impracticability.
• Destruction of identified goods.
• Partial Performance. Then Proceed?

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3 Buyers 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.

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Buyers Obligations

• Buyer has right to inspect before paying
• Costs of inspection borne by Buyer.
• However, C.O.D., C.I.F. and CF give Buyer no
  right to inspect.

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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.

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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.

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4 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.

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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.

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Case 20.1 Maple Farms v. Elmira School
(Commercial Impracticability)

• FACTS
• Maple Farms agreed to supply Elmira with all of
  the milk the district needed for the school year.
  The parties agreed to a fixed pricethe June
  market price.
• By December, the market price was 23 percent
  higher than the contract price. Because it had
  similar contracts with other school districts,
  Maple Farms stood to lose a great deal of money.
  
• Maple Farms sued to be released from the contract
  on the grounds of commercially impracticable
  because of the increase in the price of milk. 

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Case 20.1 Maple Farms v. Elmira School
(Commercial Impracticability)

• HELD FOR ELMIRA.
• An increase in the price of milk was not
  unexpected because the previous year the price
  had risen 10 percent and the price of milk had
  traditionally varied.
• Also, general inflation should have been
  anticipated. Maple Farms had reason to know
  these facts and could have contracted with the
  district to protect itself.

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Case 20.2 Industria De Calcados v. Maxwell
Shoe(Acceptance)

• FACTS
• Maxwell ordered through Fingerhut 12,042 pairs of
  shoes manufactured by Calcados and paid part of
  the price with a check.
• When the shoes arrived, they were cracked and
  peeling. Maxwell stopped payment on the check
  and told Fingerhut that it was rejecting the
  shoes.
• Maxwell never told Calcados directly that it was
  rejecting the goods. When Calcados did not
  respond, Maxwell had the shoes refinished, sold
  them, and kept the money.

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Case 20.2 Industria De Calcados v. Maxwell
Shoe(Acceptance)

• FACTS (contd)
• Calcados sued Maxwell for breach of contract.
  Trial Court held Maxwell had accepted the shoes
  when it had them refinished, on the grounds that
  an alteration or repair of a defect in goods is
  an act inconsistent with the sellers ownership
  under UCC 2606(1)(c).
• HELD The court awarded damages to Calcados
  reduced by the amount that Maxwell had paid for
  the refinishing.

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Case 20.3 Banco International v. Goodys Family
Clothing(Anticipatory Repudiation)

• FACTS
• Banco and Goodys contracted for the delivery of
  windsuits (jogging suits) in three shipments, the
  first shipment due by September 30 or the order
  would be cancelled.
• Banco sent Goodys some production samples that
  had actually been produced by another
  manufacturer. By August 23, Banco had not started
  production despite assurances from Banco.
• Goodys canceled the contract and Banco sued
  alleging breach of contract. Goodys argued
  anticipatory repudiation.

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Case 20.3 Banco International v. Goodys Family
Clothing(Anticipatory Repudiation)

• HELD FOR GOODY.
• Anticipatory repudiation was indicated by Bancos
  failure to start performance within a reasonable
  time to meet the contract deadlines and by
  Bancos misrepresentations concerning the status
  of its performance.
• It is not necessary for anticipatory
  repudiation that performance be made literally
  and utterly impossible. Repudiation can result
  from action which reasonably indicates a
  rejection of the continuing obligation.

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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.

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Sellers 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.

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Substitution of Carriers

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

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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.

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Installment Contracts

• Installment Contracts can be rejected if
• installment is substantially non-conforming and
  cant be cured.
• non-conforming installment substantially impairs
  the entire contract.

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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.

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Partial Performance

• Sometimes unforeseen event only partially affects
  Sellers 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.

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