21-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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4• Formation and Terms of Sales

Contracts• Product Liability

• Performance of Sales Contracts• Remedies for Breach of Sales

Contracts

Sales

PART

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Performance of Sales Contracts

PA ET RHC 21Business neglected is business lost.

Daniel Defoe, novelist,The Complete English Tradesman (1726)

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Learning Objectives• Explain meaning of good faith,

course of dealing, and trade usage• List basic obligations and rights of

buyer and seller for delivery of and payment for goods

• Explain when acceptance of goods occurs, the effect of acceptance, and right of revocation

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• UCC is flexible, but general rules apply:– Parties must act in good faith in the performance

of a sales contract [1–203]– If express terms of contract conflict with past

course of dealing between parties, express terms prevail [1–205(4)]

– If express terms of contract conflict with trade usage, express terms prevail [1–205(4)]

– Consideration not required to support modification of contract, but parties may specify that writing required [2–209]

General Rules of The UCC

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• If first party repeatedly fails to perform as agreed and second party fails to object, second party may have waived rights to cancel contract based on inadequate performance [2–208(3), 2–209(4)]– Second party may retract

waiver by reasonable notice to first party requiring strict performance [2–209(5)]

More General Rules

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• Basic duty of seller is to deliver goods that conform to contract with the buyer and basic duty of buyer is to accept and pay for goods if they conform to contract [2–301]

• Goods are to be delivered at seller’s place of business unless otherwise specified by contract– Within reasonable hours and for a

reasonable period of time, so buyer can take possession of goods [2–503]

Delivery Under The UCC

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• Generally, buyer has right to inspect goods before he accepts or pays for them

• If goods conform to contract, buyer must pay expenses of inspection, but if goods do not conform to contract, buyer may recover inspection expenses from seller [2–513(2); 2–715(1)]

Inspection Under The UCC

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• Buyer and seller may agree that price of goods is to be paid in money or other goods, services, or real property

• Payment may be more difficult in international sales, thus seller often insists on receiving an irrevocable letter of credit (diagram, page 578)– Resolves currency issues and payment assurance

Payment Under The UCC

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• Buyer may revoke acceptance of nonconforming goods where: – Nonconformity substantially impairs value – Buyer accepted goods without knowledge of non-

conformity (discovering nonconformity difficult)– Buyer accepted goods because seller assured

buyer it would cure defect [2–608(1)]– See Waddell v. L.V.R.V. Inc.: repeated attempts

to cure defects failed and buyers revoked acceptance

• Once goods accepted, buyer obligated to pay– Example: Weil v. Murray

Acceptance & Revocation

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• If a buyer rejects a delivery of goods, buyer must act within reasonable time after delivery and give seller notice of rejection, preferably in writing [2–602]– Buyer should state all defects on which

rejection is based– Seller may be able to cure nonconformity– See Fitl v. Strek

Rejection Under The UCC

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• If one party has reasonable basis for concern that other party may not perform, concerned party may demand assurance from the other party that the contract will be performed– Koch Materials Co. v. Shore Slurry Seal, Inc.

• If assurances not given within reasonable time (< 30 days), contract repudiated [2–609]– Repudiation may be withdrawn by clear

indication of intention to perform•Must be before other party cancels

Assurance Under The UCC

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• Convention on Contracts for the International Sale of Goods Art. 71: party may suspend performance if it becomes apparent that other party will not perform substantial part of obligations due to: (a) a serious deficiency in ability to perform or credit-worthiness; or (b) his conduct in preparing to perform or in performing the contact – Suspending performance requires immediate

notice to other party and must continue with performance if other party provides assurances

Assurances & International Contracts

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• Code rules for determining when a party is excused from performing similar to general contract rules– Test of impossibility

• In most situations, however, Code uses the test of commercial impracticability – Performance highly impracticable,

unreasonably expensive, or little value to promisee [UCC 2–615]

Excuse for Non-Performance

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Thought Question• If you contracted with another party for a

long-term sale of goods contract, such as cement for a construction project, what kind of activities would prompt you to demand assurances of performance?