Fundamentals of Business Law

1. 6th Edition Fundamentalsof Business Law Chapter 16Performance and Breachof Sales and Lease Contracts

2. Performance Obligations • 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.

3. Obligations of the Seller (Lessor) • 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.

4. 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.

5. 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.

6. Exceptions to the Perfect Tender RuleClick on the Links Below • Agreement of the Parties. • Cure. • Substitution of Carriers. • Installment contracts. • Commercial Impracticability. • Partial Performance. • Destruction of Identified Goods. • Assurance and Cooperation. Proceed

7. Obligations of the Buyer (Lessee) • Furnish facilities reasonably suited for receipt of the goods. • 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.

8. Obligations of the Buyer (Lessee) • Buyer has right to inspect before paying: • Costs of inspection borne by Buyer. • However, C.O.D., C.I.F. and C&F give Buyer no right to inspect.

9. 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.

10. 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.

11. Seller Buyer If Goods in Seller’s Possession If Goods in Seller’s Possession If Goods in Transit If Seller delivers non-conforming goods If Goods in Buyer’s Possession End Remedies Click on the Links Below

12. Seller: Goods in Seller’s Possession • Seller may withhold delivery of the goods: • If material breach by Buyer, Seller can withhold delivery of all goods. • If non-material breach, Seller can withhold delivery of this installment. • Seller can withhold delivery of all goods if Buyer is insolvent. Next

13. Seller: Goods in Seller’s Possession • Seller may rescind the contract. • Seller may identify the goods to the contract. • Seller may sell raw materials for scrap or finish production. Next

14. Seller: Goods in Seller’s Possession • Seller may resell the goods; and • Recover damages: the difference between the contract price and the resale price + incidental damages+ damages = the market price at the time & place of tender + incidental damages - expenses saved. • If No Damages, Seller can sue for lost profits. Next

15. Seller: Goods in Seller’s Possession • Seller may sue Buyer for breach of contract. • Recover Damages = the market price at the time & place of tender + incidental damages. • if there are no damages, Seller can sue for lost profits. Return

16. Seller: Goods in Transit • Goods are “in transit” when Seller has tendered goods to Carrier. • Goods are in transit until: • Buyer is given negotiable document of title to goods. • Buyer is given non-negotiable document of title or Bailee has acknowledged Buyer’s right to have the goods. • Buyer has had a reasonable time to pick up the goods. Next

17. Seller: Goods in Transit • Seller has the right to stop the goods in transit if: • Buyer is insolvent - Seller can stop entire shipment of goods. • Buyer is in breach - Seller may stop a whole truckload or whole container. Return

18. Seller: Goods in Buyer’s Possession • Seller may sue for the purchase price. • Seller may also sue Buyer if goods were “specially-made” which Seller cannot resell. • Seller may also sue for the purchase price if the goods were destroyed and the risk had already passed to the Buyer. • Seller can reclaim goods received by an insolvent Buyer if demand made within 10 days of receipt. Return

19. Buyer: Goods in Buyer’s Possession • Buyer Wants Goods • Specific performance or replevin. • Recover goods from Seller if Seller becomes insolvent within 10 days after receiving first payment. • Buyer Does Not Want Goods • Rescind contract. • Cover or do not cover and sue for breach of contract. Return

20. Buyer: Seller Delivers Nonconforming Goods • If Seller does not make perfect tender Buyer has the right to reject all or part of goods. • Buyer must timely notify Seller of rejection and reasons and follow Seller’s directions. • Buyer is entitled to commission for selling perishable goods. • Buyer may store the goods and retain a security interest in the goods for his costs. Next

21. Buyer: Seller Delivers Nonconforming Goods • If Buyer has accepted non-conforming goods, she may: • Sue for breach of warranty. • Sue for ordinary damages. • Deduct damages from purchase price. • Case 16.3 China National Metal Products Import/Export Co v. Apex Digital Inc. (2001). • Case 16.4 Yates v. Pitman Manufacturing Inc. (1999). Next

22. Revocation of Acceptance • Buyer must notify Seller of breach. • Revocation 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. Return

23. 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. Return

24. 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. Return

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

26. 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 16.1 Maple Farms v. City School District of Elmira (1974). Return

27. 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. Return

28. 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. Return

29. Partial Performance • Sometimes an 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. Return

30. Assurance & Cooperation • Assurance: • If one party has reasonable grounds to believe the other will not perform, he is entitled to assurance of performance. • Party can ‘suspend’ performance until assurance is received. • Case 16.2 Koch Materials Co. v. Shore Slurry Seal, Inc. (2002). • Cooperation: • Parties have a mutual duty to cooperate. If one does not, the other can ‘suspend’ performance. Return

31. Limitations • Parties can elect or limit UCC remedies in the contract. • Contracts can exclude/include consequential damages that are not unconscionable. • Cause of action expires FOUR years after breach of contract.