Business Law CH22 S2025 LEW

• Performance Requirements:

  • Duties of each party defined by contract terms.

  • Seller: Transfer and deliver conforming goods.

  • Buyer: Accept and pay for conforming goods.

  • Obligations of every sales contract include:

    • Good faith

    • Commercial reasonableness.

  • Remedies sought by aggrieved party upon breach of contract.

Obligations of the Seller or Lessor

1. Tender of Delivery

• Seller must deliver or tender delivery of conforming goods.

• Tender of Delivery (UCC):

  • Make conforming goods available

  • Provide notice enabling the buyer to take delivery.

  • Standards: Conforming goods must be tendered:

    • At a reasonable hour.

    • Kept available for a reasonable time.

    • tendered in a single delivery.

2. Place of Delivery

• Buyer and seller may designate delivery location.

• If unspecified, default to:

  • Seller’s place of business.

  • Seller’s residence (if no business location).

  • Location of the goods if known by both parties.

3. Delivery via Carrier

Shipment Contracts

• Seller must:

  • Place goods in carrier's hands.

  • Make reasonable transport arrangements.

  • Deliver necessary documents to buyer.

  • Notify buyer of shipment.

• Failure allows buyer to reject goods due to material loss or delay.

Destination Contracts

• Seller delivers goods to a specific destination.

  • Goods must:

    • Be tendered at a reasonable hour.

    • Be held for buyer's disposal for a reasonable time.

    • Have appropriate notice and documents provided to buyer.

4. The Perfect Tender Rule

• Obligates sellers to ship or tender goods conforming to the contract.

• UCC Options if goods fail to conform, the buyer can:

  • Accept the goods.

  • Reject the entire shipment.

  • Accept some and reject others.

5. Exceptions to the Perfect Tender Rule

1. Agreement of the Parties

• Parties may agree on exceptions; otherwise, follow UCC exceptions:

  • Right to Cure: Seller can fix defects when rejecting goods occurs before the performance deadline.

2. Substitution of Carriers

• If the designated carrier is unavailable, a commercially reasonable substitute is acceptable.

3. Installment Contracts

• Rejection allowed only if nonconformity substantially impairs value.

4. Commercial Impracticability

• Unforeseen events render performance impracticable; seller must notify buyer of delays.

5. Destruction of Identified Goods

• Unexpected destruction of goods before risk passes to buyer excuses non-performance.

6. Assurance and Cooperation

• Assurance: Demand written assurance of performance if one party doubts the other’s ability to perform.

• Cooperation: If cooperation from one party is lacking, the other can proceed reasonably, suspend performance, or hold the non-cooperating party liable.

Obligations of the Buyer or Lessee

1. Acceptance and Payment

• Buyer must accept goods and pay as per contract once goods are delivered adequately.

• Generally pay at the time and place of receipt unless credit terms specify otherwise.

2. Buyer’s Right of Inspection

• Right to inspect goods before payment to verify conformity with contract.

• If nonconforming, buyer has no payment obligation.

• Inspection must be conducted at reasonable place and time.

• The buyer bears the costs of inspecting the goods but can recover the costs from the seller if the goods do not conform and are rejected.

3. Acceptance of Goods

• Buyer demonstrates acceptance by:

  • Indicating willingness to keep conforming goods.

  • Failing to reject goods timely.

  • Performing acts inconsistent with seller’s ownership.

4. Partial Acceptance

• Buyer can partially accept goods if some are nonconforming.

• Cannot accept less than a single commercial unit.

  • A commercial unit cannot be divided without materially impairing the unit’s:

    • Character

    • Market value or

    • Use

5. Anticipatory Repudiation

• Anticipatory Repudiation: Clear indication of intent not to perform before contract due date.

  • Non-breaching party may treat as final breach or wait for performance.

  • Non-breaching party may suspend obligations.

  • Retraction: Breaching party can retract their repudiation unless the contract position has significantly changed.

Remedies of the Seller or Lessor

1. Cumulative Remedies

• Remedies for breach are cumulative and vary based on circumstances.

2. When Goods Are in the Seller’s Possession

• If buyer breaches contract before delivery, sellers remedies include:

  • Cancel the contract. (must notify buyer)

  • Withhold delivery.

  • Resell goods and sue for damages. (give reasonable notice)

  • Sue for the purchase price and damages for non-acceptance.

• For unfinished goods: seller may cease manufacturing and sell from scrap or salvage value OR Complete the manufacture and resell or dispose of the goods and hold the buyer liable for any deficiency.

  • the seller must exercise reasonable commercial judgment in order to mitigate the loss and obtain maximum value from the unfinished goods.

When goods are in transit

• Buyer insolvency: stop delivery of goods still in transit

• Buyer Breach: If the buyer is in breach but is not insolvent, the seller can stop the goods in transit only if the quantity shipped is at least a carload, a truckload, a planeload, or a larger shipment.

• To stop a delivery, the seller must quickly tell the carrier or bailee to return or hold the goods. The carrier must obey if there's enough time to stop the delivery, but the seller will pay any extra costs. The seller can stop delivery until the buyer has the goods, the carrier/bailee recognizes the buyer's rights, or a document giving ownership rights is given to the buyer.

• If the buyer breaks the contract while they have the goods, the seller can sue for the purchase price plus other related costs.

Remedies of the Buyer or Lessee

1. When Seller Refuses to Deliver Goods

• Buyer can:

  • Cancel the contract.

  • Obtain goods if seller is insolvent.

  • Sue for specific performance if goods are unique.

  • Purchase substitute goods and recover differences when necessary.

• The Right to Obtain Goods upon Seller Insolvency

  • If a buyer has partially or fully paid for goods that are in the possession of a seller who becomes insolvent, the buyer can obtain the goods if:

    • The seller became insolvent within ten days after receiving the first payment and

    • The goods must be identified to the contract.

    • The buyer must pay the seller any unpaid balance of the purchase price.

• The right to obtain specific performance

  • Usually, paying damages is enough to resolve issues when a seller doesn't fulfill a contract. But a buyer can demand specific performance—meaning the seller must actually deliver the goods—if the goods are unique or if money alone isn't a sufficient remedy.

• Buyers can protect themselves by obtaining a cover

  • A buyer’s purchase on the open market of goods to substitute for those promised but never delivered by the seller.

    • Must purchase substitute goods in good faith and without unreasonable delay.

    • Under the UCC, if the cost of cover exceeds the cost of the contract goods, the buyer can recover the difference, plus incidental and consequential damages.

  • Obtaining cover is available when:

    • The seller repudiates the contract or fails to deliver the goods.

    • A buyer has rightfully rejected goods or revoked acceptance.

• Right to Replevy goods

  • An action to recover specific goods in the hands of a third party who is wrongfully withholding them from the other party.

    • To maintain an action to replevy goods, buyers must usually show that they were unable to cover for the goods after making a reasonable effort.

• Right to sue

  • For the buyer, the measure of recovery is the difference between the contract price and the market price of the goods at the time the buyer learned of the breach.

    • Market price is determined at the place where the seller was supposed to deliver the goods.

  • The buyer can also recover incidental and consequential damages less the expenses that were saved as a result of the breach.

2. Rights upon Goods Nonconforming

• Buyer may reject, revoke acceptance, or recover damages.

• Must notify seller seasonably and designate defects.

• If merchant buyer rejects goods, must follow care instructions by seller

  • If the goods are not perishable, the merchant-buyer may either:

    • Store them for the seller or

    • Reship them to the seller

  • If no instructions are forthcoming and the goods are perishable or threaten to decline in value quickly, the merchant-buyer can resell the goods in good faith.

  • The merchant-buyer is entitled to be reimbursed for the care and cost entailed in following the instructions.

• Revocation of acceptance if

  • The nonconformity substantially impairs the value of the lot or unit and one of the following factors is present:

  1. Acceptance was based on the reasonable assumption that the nonconformity would be cured, and it has not been cured within a reasonable period of time.

  2. The failure of the buyer to discover the nonconformity was reasonably induced either by the difficulty of discovery before acceptance or by assurances made by the seller.

• Right to recover damages for accepted goods

  • A buyer who has accepted nonconforming goods may keep the goods and recover damages. must give notice and notify seller of breach within reasonable time

  • The amount of damages that a buyer can recover after accepting nonconforming goods is as follows:

  1. Damages generally equals the difference between the value of the goods as accepted and their value if they had been delivered as warranted.

  2. The buyer is entitled to incidental and consequential damages when appropriate.

  3. With proper notice to the seller, the buyer can deduct all or any part of the damages from the price still due under the contract.

Additional Provisions Affecting Remedies

1. Exclusive Remedies

• Parties may provide remedies beyond UCC unless declared exclusive.

  • Exclusive remedies allow buyers to pursue other remedies if failed in main purpose.

2. Consequential Damages

• Damages compensating for indirect losses must be foreseeable at the time of breach.

  • Under the UCC, parties in a contract can agree to limit or remove compensation for indirect losses as long as it's not extremely unfair.

3. Statutes of Limitations

• UCC specifies a four-year limit for lawsuits regarding contract breach

• UCC specifies a four-year limit from delivery date to file lawsuits regarding breach of warranty; reduced periods can be set within limits.