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Performance of Sales and Lease Contracts


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Performance of Sales and Lease Contracts

  1. 1. Chapter 21 Performance of Sales and Lease Contracts
  2. 2. Introduction <ul><li>Seller must transfer and deliver conforming goods. </li></ul><ul><li>Buyer must accept and pay for conforming goods. </li></ul><ul><li>In the absence of an agreement between Seller and Buyer, UCC Article 2 controls as set out below. </li></ul>
  3. 3. §1: Good Faith Requirement <ul><li>Good Faith is the foundation of every UCC commercial contract. </li></ul><ul><li>Good faith means honesty in fact. </li></ul><ul><li>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. </li></ul>
  4. 4. §2: Seller-Lessor Obligations <ul><li>Seller has a duty to “tender” delivery of “conforming goods.” </li></ul><ul><li>Tender means “delivery” to agreed place: </li></ul><ul><ul><li>With reasonable notice. </li></ul></ul><ul><ul><li>At a reasonable hour. </li></ul></ul><ul><ul><li>In a reasonable manner. </li></ul></ul><ul><ul><li>Exactly , unless otherwise agreed. </li></ul></ul>
  5. 5. Place of Delivery--Non-Carriers <ul><li>Buyer picks up at Seller’s place of business or, if Buyer has no place of business, then Buyer’s residence. </li></ul><ul><li>If both parties know the goods are elsewhere (at a warehouse), then place of delivery is where the goods are. </li></ul>
  6. 6. Place of Delivery--Carriers <ul><li>Shipment contracts. Seller has a duty to: </li></ul><ul><ul><li>Put goods into hands of independent carrier. </li></ul></ul><ul><ul><li>Make contract for transportation. </li></ul></ul><ul><ul><li>Obtain and promptly deliver or tender to the Buyer any documents necessary. </li></ul></ul><ul><ul><li>Promptly notify Buyer that shipment has been made. </li></ul></ul><ul><li>Destination contracts. Seller has duty to: </li></ul><ul><ul><li>Tender the goods at a reasonable hour and hold conforming goods at the Buyer’s disposal for a reasonable period of time. </li></ul></ul>
  7. 7. The Perfect Tender Rule <ul><li>If goods, or tender of delivery, fail in any respect to conform to the contract, the Buyer has the right to: </li></ul><ul><ul><li>Accept the goods; </li></ul></ul><ul><ul><li>Reject the entire shipment; or </li></ul></ul><ul><ul><li>Accept part and reject part. </li></ul></ul>
  8. 8. Exceptions to the Perfect Tender Rule <ul><li>Agreement of the Parties . </li></ul><ul><li>Cure . </li></ul><ul><li>Substitution of Carriers . </li></ul><ul><li>Installment contracts . </li></ul><ul><li>Commercial Impracticability . </li></ul><ul><li>Destruction of Identified goods . </li></ul><ul><li>Partial Performance . Proceed  </li></ul>Click on the Links Below
  9. 9. §3: Buyer-Lessee Obligations <ul><li>Furnish facilities reasonably suited for receipt of the goods. </li></ul><ul><li>Make payment at the time and place the Buyer receives the goods. </li></ul><ul><ul><li>Credit has to be prearranged. </li></ul></ul><ul><ul><ul><li>Credit period begins on the date of shipment. </li></ul></ul></ul><ul><ul><li>Pay with cash, credit card, check. </li></ul></ul><ul><ul><ul><li>But if Seller asks for cash, Seller has to give Buyer time to get cash. </li></ul></ul></ul>
  10. 10. Buyer’s Obligations <ul><li>Buyer has right to inspection before paying: </li></ul><ul><ul><li>Costs of inspection borne by Buyer. </li></ul></ul><ul><ul><li>However, C.O.D., C.I.F. and C&F give Buyer no right to inspect. </li></ul></ul>
  11. 11. Acceptance <ul><li>Buyer can accept goods: </li></ul><ul><ul><li>By words or conduct. </li></ul></ul><ul><ul><li>If Buyer had reasonable amount of time and failed to reject. </li></ul></ul><ul><ul><li>Buyer performs an act which indicates he thinks he is the owner. </li></ul></ul><ul><li>Partial Acceptance. </li></ul>
  12. 12. Revocation of Acceptance <ul><li>Notify Seller of breach. </li></ul><ul><li>Revoke only if substantial nonconformity; and </li></ul><ul><ul><li>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. </li></ul></ul>
  13. 13. §4: Anticipatory Repudiation <ul><li>Party communicates he will not perform by time of contract performance. </li></ul><ul><li>Nonbreaching party may suspend performance and: </li></ul><ul><ul><li>Treat the A.R. as material breach and pursue a remedy; or </li></ul></ul><ul><ul><li>Wait a reasonable time. </li></ul></ul><ul><li>Case 21.3: Banco International v. Goody’s Family Clothing (1999). </li></ul>
  14. 14. §5: International Contracts and Letters of Credit <ul><li>Parties. </li></ul><ul><ul><li>Account: Buyer. </li></ul></ul><ul><ul><li>Issuer: Bank. </li></ul></ul><ul><ul><li>Beneficiary: Seller. </li></ul></ul><ul><li>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. </li></ul>
  15. 15. Law on the Web <ul><li>Pace U. website on International Sale of Goods . </li></ul><ul><li>Legal Research Exercises on the Web. </li></ul>
  16. 16. Agreement of the Parties <ul><li>Parties agree that some defective goods will be acceptable. </li></ul><ul><li>Parties agree that defective goods can be replaced or repaired within a certain time. </li></ul>Return
  17. 17. Seller’s Cure <ul><li>Seller has the right to “Cure” (ship conforming goods to Buyer) if: </li></ul><ul><ul><li>Agreed time of performance has not yet expired; or </li></ul></ul><ul><ul><li>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. </li></ul></ul>Return
  18. 18. Substitution of Carriers <ul><li>If a carrier becomes impracticable or unavailable through no fault of either party, a commercially reasonable substitute is acceptable. </li></ul>Return
  19. 19. Commercial Impracticability <ul><li>Occurrence of an unforeseen contingency that makes performance impracticable. </li></ul><ul><li>Nonoccurrence was a basic assumption on which the contract was made. </li></ul><ul><li>If only partial impracticability, Seller must allocate what he/she has. </li></ul><ul><li>Case 21.1: Maple Farms v. City School District of Elmira (1974). </li></ul>Return
  20. 20. Installment Contracts <ul><li>Installment Contracts can be rejected if: </li></ul><ul><ul><li>installment is substantially non-conforming and can’t be cured. </li></ul></ul><ul><ul><li>non-conforming installment substantially impairs the entire contract. </li></ul></ul>Return
  21. 21. Destruction of Goods <ul><li>If no fault of either party and it occurs </li></ul><ul><li>Before risk passes to Buyer then </li></ul><ul><li>Both Seller and Buyer are excused from performance. </li></ul>Return
  22. 22. Partial Performance <ul><li>Sometimes unforeseen event only partially affects Seller’s capacity to perform. </li></ul><ul><li>In that event, Seller has duty to reasonably allocate any remaining production capacity to fulfilling contractual performance. </li></ul><ul><li>Buyer has the right to reject. </li></ul><ul><li>Case 21.2: Kock Materials Co. v. Shore Slurry Seal, Inc. (2002). </li></ul>Return