2. 14-2
Learning Objectives
1. Describe what is meant by tender of
performance.
2. Outline the rights and duties of sellers and buyers
in a sales contract.
3. Explain the doctrine of anticipatory breach.
4. Discuss the seller’s and the buyer’s remedies in
case of a breach.
5. Define the term statute of limitations.
3. 14-3
6. Describe the three ways in which an express
warranty may be created.
7. State the requirements of the Magnuson-Moss
Warranty Act.
8. Differentiate among the implied warranties of
fitness for a particular purpose, merchantability,
and usage of trade.
9. Explain the meaning of a warranty of title.
10.Recognize the ways in which warranties may be
excluded.
Learning Objectives
4. 14-4
Obligations of the Parties
• Good faith
– All parties must act honestly
• Unconscionable contract
– So one-sided that it is oppressive and gives unfair
advantage to one of the parties
– Unequal bargaining power, absence of choice by one
party, unreasonably one-sided terms
• Course of dealings and usage of trade
– Can influence firms’ obligations
5. 14-5
Unconscionable contract/clause in NC
§ 25-2-302. Unconscionable contract or clause.
(1) If the court as a matter of law finds the contract or any clause of
the contract to have been unconscionable at the time it was made the
court may refuse to enforce the contract, or it may enforce the
remainder of the contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause as to avoid any
unconscionable result.
(2) When it is claimed or appears to the court that the contract or
any clause thereof may be unconscionable the parties shall be afforded
a reasonable opportunity to present evidence as to its commercial
setting, purpose and effect to aid the court in making the
determination. (1971, c. 1055, s. 1.)
6. 14-6
Tender of Performance
• The offering by a party to do what they agreed to
in the contract
– When the seller offers to turn the goods over to the
buyer
– When the buyer offers to pay for them
• If a party fails to make tender, they cannot bring
suit in case of breach
7. 14-7
Tender of Delivery by Seller
• Offer to turn the goods over to the buyer
• Failure to make tender could give the buyer an
excuse not to perform
8. 14-8
Tender of Delivery by Seller
• Manner of Seller’s Tender
– Seller must put and hold conforming goods at the
buyer’s disposition during a reasonable time of day
– Must notify buyer that goods are being tendered
– Buyer must furnish suitable facilities for receipt
• Shipment Contract
– Seller must put goods in possession of carrier, contract
with carrier for transportation, and send any necessary
documents to buyer
9. 14-9
Tender of Delivery by Seller
• Goods in Possession of Warehouse
– Seller either:
• Tenders a document of title covering the goods, or
• Obtains an acknowledgment by the warehouse of the buyer’s
right to possession
• International Law
– Seller delivers goods and any required documents,
hands goods over to a carrier, or places the goods at
the buyer’s disposal
10. 14-10
Tender of Payment by Buyer
• Tender of payment
– Offering to turn the necessary money over to the seller
– May be done by any means or manner commonly used
in ordinary course of business
11. 14-11
Tender of Payment by Buyer
• Legal tender
– Money that may be offered legally in satisfaction of a
debt and that must be accepted by a creditor when
offered
• Under UCC, payment by check is conditional
– If check clears, debt discharged
– If dishonored, debt is revived
Treasury.gov on legal tender
12. 14-12
Buyer’s Rights and Duties
• Buyer has the right to inspect the goods before
accepting or paying for them.
• Exception:
– When goods are shipped c.o.d.
• Buyer must pay first, but may choose to reject upon
inspection
– Unless the defect is obvious without inspection
– Payment before inspection does not constitute
acceptance. If a defect is found, buyer may seek
remedies against the seller.
13. 14-13
Buyer’s Rights and Duties
• When defective goods are delivered, the buyer
may elect to:
– reject them all
– accept them all, or
– accept any commercial unit or units and reject the rest
• Commercial unit
– a single whole for the purpose of sale, the division of
which impairs its character or value on the market
14. 14-14
Rejection
• Occurs when a buyer refuses to accept delivery of
goods tendered
• Must be done within a reasonable time after
delivery or tender to the buyer
• Buyer must notify seller of the defect in the goods
to give the seller an opportunity to correct the
defect
15. 14-15
Rejection
• If seller does not give instructions after a
reasonable time, buyer may:
– Store goods for seller
– Reship to seller
– Resell them for seller
• Buyer is entitled to recover expenses incurred.
16. 14-16
Merchant Buyer’s Duties
• Merchant buyers have a duty to follow any
reasonable instructions received from the seller
with respect to the goods
• If no instructions, must make reasonable effort to
sell goods for the seller if they are perishable or
threaten to decline in value quickly
• Merchant buyer is entitled to recover costs for
reasonable expenses of storage and sale, as well as
a commission
17. 14-17
Acceptance
Acceptance of goods takes place when the buyer does any
of the following:
• Signifies to the seller that the goods are conforming
• Signifies to the seller a willingness to take them even
though they are not conforming.
• Fails to reject them.
• Performs any act that is inconsistent with the seller’s
ownership.
18. 14-18
Revocation of Acceptance
• If a buyer accepts goods assuming that their
nonconformity would be corrected by the seller,
and the seller does not do so, the buyer may
revoke the acceptance.
– Must be done in a reasonable time, and is not complete
until buyer notifies seller
– If buyer revokes acceptance, has same rights and duties
as if he/she had rejected the goods
19. 14-19
Seller’s Right to Cure Improper Tender
• Sellers may sometimes cure an improper tender or
delivery of goods
– correcting the defect that caused the goods to be
rejected
• If time for performance has not expired, seller can
cure within contract time.
• If time has expired, seller can have additional time
if they had reasonable grounds to believe that
goods delivered were acceptable
20. 14-20
Central Dist. Alarm, INC. v. Hal-Tuc, Inc.
• Hal-Tuc contracts to have Central Dist. Install new
surveillance equipment
• Equipment malfunctions, Hal-Tuc discovers Central
had installed used equipment
• Central attempts to cure
• Court allows Hal-Tuc to rescind contract because
Central did not live up to its end of the original
contract.
21. 14-21
Breach of Contract
• When one of the parties fails to do what was
agreed upon in the contract
• UCC provides for specific remedies
• All parties must attempt to mitigate damages
22. 14-22
Anticipatory Breach
• Anticipatory Breach
– one of the parties notifies the other party before the
time for performance that he/she is not going to
perform
• Injured party can take action immediately if
waiting would be unjust or cause a material
inconvenience
• Can seek any remedy available for breach of
contract and suspend his/her own performance
23. 14-23
Seller’s Remedies When Buyer Breaches
• Withhold Delivery of Goods
• Stop Delivery of the Goods
• Resell the Goods
• Recover Damages
• Sue for Price
• Cancel the Contract
24. 14-24
• Stop Delivery of the Goods
– If, after shipping the goods, the seller discovers that the
buyer is insolvent (unable to pay debts), the seller may
have the delivery stopped.
• This right is known as stoppage in transit
Seller’s Remedies When Buyer Breaches
25. 14-25
Seller’s Remedies When Buyer Breaches
• Resell the goods
– Resell goods that have been rightfully withheld, and
then sue the buyer for the difference between the
agreed price and the resale price
• Private sale – must give buyer reasonable notice of intention
to resell
• Public sale – must be made at a place normally used for
public sales, if such a place is available
– If someone buys goods at a resale in good faith, the
goods are free from any rights of the original buyer
26. 14-26
Seller’s Remedies When Buyer Breaches
• Recover Damages
– Retain the goods and sue the buyer for the difference
between the agreed and market prices, or
– Sue for the profit the seller would have made if the
contract was honored
– Seller is entitled to incidental damages
• Reasonable expenses that result indirectly from breach
• Stoppage of transit, transportation costs, taking care of goods
after the buyer breached
27. 14-27
Seller’s Remedies When Buyer Breaches
• Sue for price
– Price of goods that the buyer accepted
– Price of goods that cannot be reasonably resold
– Price of any lost or damaged goods after risk of loss
passed to buyer
• If buyer has to pay price as result of court
judgment, goods become property of buyer.
• If goods are resold by seller before collection of
judgment, the net proceeds are credited to the
buyer.
28. 14-28
Buyer’s Remedies When Seller Breaches
• Cancel the contract and sue for return of any
money that has been paid
• Cover the Sale
– buy similar goods from someone else and sue seller for
difference in price
29. 14-29
Buyer’s Remedies When Seller Breaches
• Sue for Breach
– Sue to recover damages, if any were suffered
– Measure of damages is difference between agreed
price and market price on the day the buyer learned of
the breach
– Buyer may also sue for incidental and consequential
damages
– Damages may be agreed upon by parties when they
first enter the contract (liquidated damages), and the
court will uphold as long as they are reasonable
30. 14-30
Buyer’s Remedies When Seller Breaches
• Keep Goods and Seek Adjustment
– When improper goods are delivered, buyer may keep
them and ask the seller for an adjustment
– If no adjustment is made, buyer may sue for breach of
warranty or breach of contract
– Amount of suit would be difference in value of goods
contracted for and value of goods received
31. 14-31
• Sue for Specific Performance
– Buyer may ask court to order seller to perform what
was agreed to in the contract
– Permitted when award of money will not be sufficient
– Writ of replevin – court order that allows a person
entitled to goods to recover them from someone who
has them wrongfully
Buyer’s Remedies When Seller Breaches
32. 14-32
Statute of Limitations
• Nearly all lawsuits have a time limit within which
suit must be brought
• In general, an action for breach of a sales contract
must be brought within four years after the date of
the breach
• Parties may agree on a different time period if they
wish, but not shorter than one year or longer than
four years
• NC statutes of limitation
33. 14-33
Warranty Protection
• Express warranty
– An oral or written statement, promise, or other
representation about the quality of a product
• Statement of fact or promise
• Description of the goods
• Sample or model
34. 14-34
Statement of Fact or Promise
• UCC § 2-313
“Any affirmation of fact or promise made by the
seller to the buyer which relates to the goods and
becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the
affirmation or promise.”
35. 14-35
Contrast: Puffery
• Statements of opinion, exaggerated and persuasive
statements
“an affirmation merely of the value of the goods or a
statement purporting to be merely the seller's
opinion or commendation of the goods does not
create a warranty.”
36. 14-36
FTC-established rules
• For advertising express warranties on goods that
are sold in interstate commerce.
– An ad promoting a good as ‘warranted’ must tell you how to get
a copy of the warranty before purchase
– Using expressions like: “satisfaction guaranteed,” “money-back
guarantee,” “free trial offer,” must refund full purchase price at
request of purchaser. Conditions limiting return must be stated
in ad.
– Advertisers who warrant products for lifetime must explain what
that means.
37. 14-37
Description of the Goods
• Any description of the goods that is made part of
the basis of the bargain creates an express
warranty that the goods will be as described.
– Verbal
– Packaging
– Catalog descriptions
– Etc.
38. 14-38
Sample or Model
• When a sample or model becomes part of the
basis of the bargain, an express warranty is
created.
• The seller warrants that the goods that will be
delivered are the same as the sample or model.
39. 14-39
Magnuson-Moss Warranty Act (1975)
• Designed to prevent deceptive warranty practices
and provide consumers with more information
about warranties that are made on products they
buy.
• Applies only when written warranties are made
voluntarily for purchases of consumer products.
40. 14-40
Magnuson-Moss Warranty Act
• Consumer products
– tangible personal property normally used for personal,
family, or household purposes
41. 14-41
Magnuson-Moss Warranty Act
• Full warranty
– defective product will be repaired without charge
within a reasonable time after a complaint has been
made about it
• Limited warranty
– any written warranty that does not meet all of the
requirements for a full warranty.
42. 14-42
Implied Warranties
• A warranty that is imposed by law rather than by
statements, descriptions, or samples given by the
seller
– Designed to promote good business practices
43. 14-43
Warranty of Merchantability
• Whenever a merchant sells goods, the merchant
warrants that the goods are merchantable (fit for
the purpose for which they are sold)
– Must be of acceptable quality, in conformance with
contract description, adequately
contained/packaged/labeled, in conformance with
statements made on packaging/labeling
– Applies only when defect exists at time of purchase
44. 14-44
Fitness for a Particular Purpose
• When the buyer relies on the seller’s skill and
judgment to select the goods, the seller implicitly
warrants that the goods will be fit for the purpose
for which they are to be used.
45. 14-45
Warranty of Title
• When goods are sold (merchant or private party),
seller warrants that title is good and transfer is
rightful
– Includes an implied promise that the goods will be
delivered free of any liens (claims of others) about
which the buyer has no knowledge
• If buyer is aware that seller does not personally
claim title, warranty of title not created
– Ex: seller operating in a representative capacity, like
auctioneer, sheriff, or administrator of a decedent’s
estate
46. 14-46
Duty to Notify Seller of Defective Product
• Buyers must notify the seller of the defect within a
reasonable time either after the discovery or after
the defect should have been discovered.
• If no notification made, cannot recover money
damages
47. 14-47
Exclusion of Warranties
• To exclude the implied warranty of merchantability
(in states that allow it), the word merchantability
must be used in the disclaimer.
• If the exclusion is in writing, it must be in large,
bold type so that it is conspicuous.
48. 14-48
Exclusion of Warranties
• Expressions like, “as is” and “with all faults” also
exclude implied warranties
– but not express warranties or warranty of title
• Implied warranties may also be excluded by having
the buyer inspect the goods prior to purchase
– only excludes defects that would have been revealed
upon inspection
49. 14-49
Exclusion of Warranties
• Under Magnuson-Moss, clauses limiting or
excluding consequential damages for breach of
warranty must be conspicuously placed on the face
of the warranty
• Consequential damages
– losses that do not flow directly and immediately from
an act but only from some of the consequences or
results of the act.
50. 14-50
Consumer Protection
• Under Magnuson-Moss:
– If either a full or limited express warranty is made to a
consumer, the implied warranties of merchantability
and fitness for a particular purpose may not be
excluded during the warranty period.
51. 14-51
Privity Not Required
• Old law: Privity required to obtain a remedy.
• UCC has abolished this requirement
• Provides three alternatives where warranties
extend to people who would normally be expected
to use the goods as well as to those who actually
buy them.
52. 14-52
3 Alternatives (NC uses Alt. A)
• Alternative A - A seller’s warranty, whether express or implied, extends to
any natural person who is in the family or household of his buyer or who is
a guest in his home if it is reasonable to expect that such person may use,
consume, or be affected by the goods and who is injured in person by
breach of the warranty. A seller may not exclude or limit the operation of
this section.
• Alternative B - A seller’s warranty, whether express or implied, extends to
any natural person who may reasonably be expected to use, consume, or
be affected by the goods and who is injured in person by breach of the
warranty. A seller may not exclude or limit the operation of this section.
• Alternative C - A seller’s warranty, whether express or implied, extends to
any person who may reasonably be expected to use, consume, or be
affected by the goods and who is injured by breach of the warranty. A
seller may not exclude or limit the operation of this section with respect to
injury to the person of an individual to whom the warranty extends.
53. 14-53
Question?
What type of contract is so one-sided that it is
oppressive and gives unfair advantage to one of
the parties?
A. Formatted
B. Unconscionable
C. Conscientious
D. Systematic
54. 14-54
Question?
When the seller offers to turn the goods over to the
buyer and when the buyer offers to pay for them
it is called __________.
A. Tender of payment
B. Legal tender
C. Tender of performance
D. Tender of compensation
55. 14-55
Question?
When one of the parties of a contract notifies the
other party before the time for performance that
he or she is not going to conform it is called
_______________.
A. Consultant breach
B. Anticipatory breach
C. Contract breach
D. Indenture breach
56. 14-56
Question?
The offer to turn the goods over to the buyer is
called tender of _________.
A. Performance
B. Contract
C. Indenture
D. Delivery
57. 14-57
Question?
What is money that may be offered legally in
satisfaction of a debt?
A. Legal tender
B. Exchange
C. Coinage
D. Barter
58. 14-58
Question?
In general, an action for breach of a sales contract
must be brought within _______ years.
A. Three
B. Four
C. Five
D. Ten
59. 14-59
Question?
What is an oral statement, promise, or other
representation about the quality of a product?
A. Guarantee
B. Pledge
C. Implied Assurance
D. Express warranty
60. 14-60
Question?
What is tangible personal property normally used for
personal, family, or household purposes?
A. Consumer products
B. Customer artifacts
C. Consumer goods
D. Customer goods
61. 14-61
Question?
Which type of warranty is imposed by law rather
than by statements given by the seller?
A. Full
B. Limited
C. Implied
D. Restricted
62. 14-62
Question?
What type of warranty includes an implied promise
that the goods will be delivered free of any liens?
A. Warranty of merchantability
B. Warranty of fitness for a particular purpose
C. Warranty of title
D. Warranty of commercilization
63. 14-63
Question?
What are losses that do not flow directly and
immediately from an act but only from some of
the consequences or results of the act?
A. Bad losses
B. Inconsequential losses
C. Consequential damages
D. Inconsequential damages
64. 14-64
Question?
What is the failure to exercise that degree of care
that a reasonably prudent person would have
exercised under the same circumstances and
conditions?
A. Strict liability
B. Negligence
C. Personal responsibility
D. Carelessness
