Performance of Sales Contracts

1
CHAPTER 20

• Performance of Sales Contracts

2
General Rules

• Good Faith Honesty in Fact in performing
  duties assumed in a contract or in carrying out
  the transaction
• Question 1 at end of chapter
• No. The court held that Ratzlaff had not acted in
  good faith in the way he terminated the contract.
  Both parties to a contract have a duty to act in
  good faith in performing and enforcing a
  contract. Ratzlaff never asked Baker for the
  payment, either when he delivered the popcorn or
  in their later telephone conversations. He never
  gave Baker any idea that he was concerned about
  payment until he terminated the contract. In
  addition, Ratzlaffs quick resale of the popcorn
  at almost double the price he had agreed to sell
  it to Baker cast doubt on his good faith. Baker
  v. Ratzlaff, 564 P.2d 153 (Ct. App. Kan. 1977).

3
General Rules

• Course of Dealing past behavior between parties
• Relevant in interpreting the meaning of ambiguous
  terms in a contract
• Usage of Trade- Customs/Practices
• Relevant in interpreting the meaning of ambiguous
  terms in a contract

4
General Rules

• Usage of Trade- Customs/Practices
• Weisz Graphics Division of the Fred B. Johnson
  Co., Inc. v. Peck Industries, Inc., p.345
• Even though the buyers purchase orders did not
  contain a release deadline, a limitation of 12
  months on such releases was incorporated into the
  contract through usage of trade and course of
  dealing. Such a 12 month release limitation was
  standard in the industry and the prior course of
  dealing between the buyer and the seller had been
  for the seller to ship within 12 months.

5
General Rules

• Waiver - Failure to object to ongoing
  modifications in performance may constitute
• May retract with reasonable notice
• Assignment
• Duties under a contract are generally assignable
  unless otherwise specified or of a special sort
  (e.g. personal services)

6
Delivery

• Basic Obligations
• Seller Deliver
• Buyer Accept and Pay
• Place
• Where agreed
• Default Sellers Place of Business
• If none, Home

7
Delivery

• Sellers Duty
• Tender of Delivery Make goods available to
  buyer in a reasonable manner
• If Shipping, Seller Must Make Reasonable Contract
  with Carrier and Notify Buyer
• Example When goods are sold on an F.O.B. basis,
  the seller in the absence of instructions from
  the buyer is responsible for using reasonable
  care and judgement in making shipping
  arrangements. The failure to use floor racks was
  a breach of this duty to use reasonable care in
  making shipping arrangements. Therefore, the
  seller is in breach and is liable for the damages
  sustained. Spada Distributing Co. v. Belson, 26
  A.D. 88 (1967) (United States Dept. of
  Agriculture).

8
Buyers Rights on Delivery- Inspection

• Normally, Buyer has right to inspect prior to
  acceptance
• Exception Cash on Delivery (C.O.D)
• If obvious impairment, may reject without paying
• Question 2 at end of chapter.
• Yes. Under 2-513, the buyer has the right to
  inspect the goods before payment or acceptance.
  Therefore, the seller is not entitled to recover
  the price of the undelivered cars because the
  buyer was not accorded this opportunity. Ledford
  v. Cowan, 496 So.2d 64 (Ct. Civ. Ala. 1986).
• Question 4 at end of chapter.
• No. The court held that Mrs. Farkas had not
  accepted the violin on Saturday. Two days was a
  reasonable time for the violin to be taken to the
  music teacher and for it to be inspected. As
  soon as the crack was discovered during the
  inspection, the seller was notified that the
  buyer did not desire to continue possession.
  Shelton v. Farkas, 635 P.2d 1109 (Ct. App. Wash.
  1981).
• Payment
• Generally, on delivery, by any reasonable manner
  unless otherwise specified

9
Buyers Rights on Delivery- Inspection

• Acceptance- Cannot Reject Later
• Commercial Unit Whole Unit
• Accept any part accept whole
• Weil v. Murray, p.349
• Where a prospective buyer maintained possession
  of a painting for almost five months, had ample
  time to inspect it, and permitted the painting to
  be cleaned and altered, the buyer was considered
  to have accepted the painting, having had more
  than a reasonable opportunity to inspect it,
  failed to indicate he was rejecting it or to
  return it, and committed acts inconsistent with
  the sellers ownership of the painting.
• Effect, normally cant reject later
• Must give timely notice of non-conformity
• Question 6 at end of chapter
• Yes. The court held that where four days after
  the buyer acquired the vehicle, he discovered
  that the mileage on the vehicle was incorrect and
  sought to return it to the dealer in exchange for
  the money he had paid, the buyer had timely
  exercised his right to revoke acceptance of the
  vehicle. Cuesta v. Classic Wheels, Inc., 818
  A.2d 448 (Super. Ct. N.J. 2003).

10
Buyers Rights on Delivery- Inspection

• Revocation- Before Substantial Change, where
• Substantially Impairs Value
• Accepted Without Knowledge of Non-Conformity, or
  on assurances
• Effective When Buyer Notifies Seller of Intent
• North River Homes, Inc. v. Bosarge, p.349
• Where the defects in a mobile home constituted a
  substantial impairment of the value of the home,
  the seller did not have an unlimited time to
  remedy them and the buyer was justified in
  revoking his acceptance.
• Question 5 at end of chapter
• No. The court held that as conditions precedent
  to revocation of acceptance, it must first be
  shown (10 that the goods are nonconforming, and
  (2) that such nonconformity substantially impairs
  the failure of the goods to the buyer. A
  substantial impairment means more than a minor
  defect that is easily repairable. Here, there is
  ample support for the court to conclude that at
  the time of the buyers attempted revocation, the
  pickup truck was not substantially impaired.
  specifically, the manufacturers employee was
  unable to find the purported defect despite over
  30 tests of the vehicle. Ramos v. Ford Motor
  Co., 655 N.W.2d 447 (Sup. Ct. S.D. 2002).

11
Buyers Rights on Delivery- Non-Conforming

• Question 3 at end of chapter.
• .No. Under the UCC a buyer is permitted to return
  any nonconforming goods to a seller. Where the
  goods fail to conform to the contract, the buyer
  may reject the whole, accept the whole, or accept
  any commercial unit or units and reject the
  remainder. Rejection must be within a reasonable
  time and requires that the seller be reasonably
  notified of the rejection, that the buyer not
  exercise ownership of the goods, and that the
  buyer hold the goods with reasonable care to give
  the seller an opportunity to remove them. Here,
  it is reasonable to conclude that only some of
  the goods were un-merchantable because some were
  resold to another retailer and others sold to
  customers without apparent complaint. Starr also
  had not received complaints from other purchasers
  from the same shipment Ford claimed was
  un-merchantable. Fords placement of the
  merchandise in inventory and later resale of some
  goods were inconsistent with a claim he had
  rejected them. He also did not avail himself of
  several opportunities to return the fireworks to
  Starrs representativesand when he did return
  some, it was only 10 cases. His purported return
  of the balance of the fireworks, leaving them
  unattended outside an urban business location was
  clearly unreasonable. In sum, Fords exercise of
  ownership over some of the goods and his
  subsequent failure to exercise reasonable care in
  returning them lead to his being considered to
  have accepted them and, in turn, his liability
  for paying for them. Ford v. Starr Fireworks,
  Inc., 874 P.2d 230 (Sup. Ct. Wyo. 1994)

12
Buyers Rights on Delivery- Non-Conforming

• Example If a buyer treats a shipment of goods as
  if he or she owns them, the UCC regards those
  actions as acceptance of the shipment by the
  buyer. Maxwell Shoe initially rejected the
  goods, but when it subsequently shipped the shoes
  to another company to be refinished, it acted in
  a manner contrary to its assertion that it
  rejected the goods. The court stated that
  altering or repairing defects is inconsistent
  with the sellers ownership of the goods.
  Therefore, Maxwell Shoe accepted the shipment of
  shoes from Martinia Industries and Martinia
  Industries was entitled to the value of the
  shoes. Industria de Calcados Martinia Ltda. V.
  Maxwell Shoe Co., 630 N.E.2d 299 (Mass. Ct. App.
  1994)

13
Buyers Rights on Delivery- Non-Conforming

• Example In ascertaining whether a buyers
  continued used of an item after revocation of its
  acceptance was reasonable, the critical questions
  are (1) On being apprised of the buyers
  revocation of her acceptance, what instructions,
  if any, did the seller tender the buyer
  concerning return of the now rejected goods? (2)
  Did the buyers business needs or personal
  circumstances compel the continued use? (3)
  During the period of such use, did the seller
  persist in assuring the buyer that all
  non-conformities would be cured or that
  provisions would otherwise be made to recompense
  the latter for the dissatisfaction and
  inconvenience that the defects caused him? (4)
  Did the seller act in good faith? (5) Was the
  seller unduly prejudiced by the buyers continued
  use? Here, the seller did not respond to
  McCulloughs request for instructions. As a
  young secretary with limited financial resources,
  she was not in a position to return the
  automobile and obtain a second one while
  remaining liable for repaying the loan on the
  first car. By attempting to repair the vehicle
  even after she gave notice of revocation, the
  dealer provided express and tacit assurances that
  the defects were remediable, thus inducing her to
  retain possession. And, finally, the seller was
  not prejudiced by McCulloughs continued
  operation of the vehicle. Swad did not reassume
  ownership of it when requested and thus had to
  bear the loss for any diminution in resale value.
  McCullough v. Bill Swad Chrysler-Plymouth, Inc.,
  449 N.E.2d 1289 (Sup. Ct. Ohio 1983).

14
Buyers Rights on Delivery- Non-Conforming

• Nonconforming Options
• reject all
• accept all
• accept commercial units, reject rest
• Not accept part, reject part
• If installments
• Can reject if substantially affects value and
  cannot be cured by seller
• Rejection- Pay For Accepted Units
• Act within a reasonable time
• Notify Seller
• Specify Defect(s)
• Right to Cure
• Where seller reasonable belief buyer would accept
  (e.g. based on prior course of dealing)

15
Buyers Duties Upon Rejection

• Follow reasonable instructions
• Store non-perishables, or
• Question 7 at end of chapter.
• No. The court held that Fekkos had met his duty
  to use reasonable care to protect the tractor
  after he had rightfully rejected it and pending
  an opportunity for the seller to remove it. It
  found his actions reasonable under the
  circumstances present at his home and noted that
  Lykins employees were made aware of where the
  tractor had been parked. So long as the buyer
  exercises reasonable care, the risk of loss
  concerning rejected goods remains on the seller.
  Lykins Oil Co. v. Fekkos, 507 N.E.2d 795 (Ct.
  Comm. Pl. Ohio 1986).
• Reship, or
• Resell
• If resell, do in good faith
• Question 8 at end of chapter.
• Traynor had acted exactly as he should have when
  he received the shipment of trees that did not
  conform to the contract. Traynor inspected them,
  gave prompt notice of rejection to the seller,
  awaited the sellers instructions, and then acted
  to prevent further loss to perishable goods by
  selling them. Traynor was entitled to recover his
  expenses of caring for and selling the trees,
  including rental of a lot and wages for a night
  watchman and a salesman. Traynor v. Walters, 342
  F.Supp. 455 (M.D. Pa. 1972).

16
Buyer/Seller May

• If reasonable basis to suspect non-performance
  may request assurances
• If not given, may repudiate
• LNS Investment Co., Inc. v. Phillips 66 Co., p.
  353
• Where the purchasers of a large quantity of
  plastic bottles had reasonable grounds for
  insecurity concerning the performance of the
  seller, the purchaser was justified in requesting
  assurances that the seller would perform its
  obligations under the contract and also justified
  in suspending its performance of the contract
  when adequate assurances were not forthcoming.
• Question 9 at end of chapter
• The court held that Creusot-Loires request for
  assurance was reasonable under the circumstances.
  Coppus was obligated to provide burners which
  would operate under certain conditions and
  Creusot-Loire was justified in seeking assurances
  that the burners would be able to meet the
  Yugoslavian operating conditions. Coppuss
  failure to provide any assurances, except for the
  bare statement that the burners would work if
  installed, constituted a repudiation of the
  contract. Creusot-Loire International, Inc. v.
  Coppus Engineering Corp., 535 F. Supp. 45 (S.D.
  N.Y. 1983).