Introduction of Sales and Lease Contracts
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.
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.
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-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.
Place of Delivery—Carriers
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
Agreement of the Parties.
Cure, Substitution of Carriers.
Destruction of Identified goods.
Partial Performance, Proceede
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, and check.
But if Seller asks for cash, Seller has to give Buyer time to get cash.
- 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 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.
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.
Party communicates he will not perform by time of contract performance.
No breaching 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).
International Contracts and Letters of Credit Parties.
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.
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.
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.
Substitution of Carriers
If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable.
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).
Installment Contracts can be rejected if:
Installment is substantially non-conforming and can’t be cured.
Non-conforming installment substantially impairs the entire contract.
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.
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).