Contracts II Class 15: Law of Breach – Part II

Seller’s Nonperformance under Article 2

• Seller Duties in Sale of Goods

• Sellers must provide and ship conforming goods as per contract specifications.

• How Seller May Breach or Repudiate

• Non-delivery of goods.

• Failure to tender goods properly (Perfect Tender Rule, § 2-601).

• Breach of warranty (§§ 2-313, 314, 415).

• Anticipatory repudiation (§§ 2-610, 611).

• Buyer's Responses to Seller's Nonperformance

• Rejection: Must occur within a reasonable time after delivery according to § 2-602.

  • Perfect Tender Rule applies; the goods must conform exactly.
  • Seller may have cure rights under § 2-508.

• Acceptance: Under § 2-606, if the buyer accepts non-conforming goods, they can still seek remedies under warranty laws.

• Revocation of Acceptance: Possible under § 2-608 if non-conforming goods substantially impair value, requiring notification before substantial change in goods.

• Cancellation: Seller can cancel the agreement as per § 2-711(1).

Perfect Tender Rule (PTR)

• Seller is obligated to tender only conforming goods, i.e., a perfect tender is required for acceptance.
• This rule applies primarily to singular sales; installment contracts are addressed by § 2-612.

Buyer's Right to Inspect

• The buyer has a right to inspect goods before accepting.
• Incurred costs of inspection are generally borne by the buyer unless the goods are found to be non-conforming (§ 2-513).

Seller's Right to Cure Nonconforming Tender

• Seller's Cure Rights: According to § 2-508, sellers may remedy defective tenders.
• Two scenarios where seller can cure:

1. If time for performance remains.
2. If seller reasonably believed the buyer would accept non-conforming goods.

Examples:

• If goods are delivered defective before the deadline, the seller can still provide conforming goods by the deadline.
• If a seller delivers a higher quality product than ordered, they may correct their tender within a reasonable time.

Buyer’s Rights Upon Nonconforming Tender

• Accepting Nonconforming Goods (§ 2-606):

• Buyer may accept the goods; acceptance occurs if:

  • Buyer indicates intent to keep them after reasonable inspection.
  • Buyer does not reject after inspection.
  • Buyer acts contrary to seller’s ownership of goods.

• Acceptance and Warranty: Buyer can accept non-conforming goods and still seek remedies for breaches of warranty under § 2-714.

Revocation of Acceptance

• Buyers may revoke the acceptance of goods whose non-conformity substantially impairs value, identified in § 2-608.

• Timeliness of revocation must occur reasonably after the discovery of non-conformity and before any significant change in the goods' condition.

• Notification: Like rejection, buyers must seasonably notify sellers upon revocation.

Summary of Rights

• Buyer's Rights Summary:

• Right to inspect (before payment) and right to reject non-conforming goods.

• Seller's Rights Summary:

• Has an unconditional right to cure within the original performance time, promoting communication between parties and encouraging resolution of issues.

• When time for performance has passed, sellers are protected from rejection for trivial defects, avoiding buyer exploitation of defects after depreciation.

Buyer’s Nonperformance

• Buyer’s Primary Obligation: Pay for any accepted goods when seller has made delivery (§ 2-607).
• Potential Buyer Breaches:
• Failing to make payment (§ 2-703).
• Wrongful rejection of properly tendered goods.
• Anticipatory repudiation (not paying or accepting).

Problems and Practical Applications

• Seller's tender, buyer’s inspection, rejection processes, and acceptance scenario explained clearly through steps:

1. Tender of goods (§ 2-601).
2. Buyer inspects for non-conformity (§§ 2-513(1), 2-606(1)(b)).
3. Depending on inspection results:
   • Reject or accept with expectation of cure.
4. On discovering post-acceptance non-conformity: Buyer may either revoke acceptance or pursue remedies for breach.