Formation and Terms of Sales ContractsProduct Liability

Performance of Sales ContractsRemedies for Breach of Sales Contracts

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Performance of Sales Contracts

Business neglected is business lost.

Daniel Defoe, novelist,The Complete English

Tradesman (1726)

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

General rules of performance under the Uniform Commercial Code

Delivery, inspection, and paymentAcceptance, revocation, and

rejectionAssurance, repudiation, and

excuse21 - 3

The 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 waive 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 (see page 552 for diagram) 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)] 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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Weil v. Murray

Facts: Weil consigned a Degas painting to Murray

for a private inspection and sale Weil agreed to full payment of $1 Million on

12/8 Murray never paid and Weil brought suit

Trial Court: Undisputed that Murray accepted the

goods, had reasonable time to inspect goods, and even had the painting cleaned

Summary judgment for Weil21 - 10

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

rejection is based Seller may be able to cure nonconformity

Rejection Under The UCC

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

Inc. If assurances not given within reasonable time (<

30 days), contract considered repudiated [2–609] Repudiation may be withdrawn by clear indication

of intention to perform Must occur before other party cancels contract

Assurance Under The UCC

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Koch Materials Co. v. Shore Slurry Seal, Inc.

Facts: Koch bought a manufacturing plant and

license rights to a product from Shore under complex contract covering payments and materials supply

Owner of Shore notified Koch of impending sale of company and Koch requested assurance of performance, but Shore’s response prompted Koch to file suit claiming lack of adequate assurances equated to repudiation of contract

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Legal Reasoning: Judge reviewed state’s UCC law

A party with reasonable grounds for concern may demand assurance and failure to provide assurance is repudiation

Applied law to facts Relevant agreements and lack of sale details

were reasonable grounds for concern Shore’s letters failed to provide Koch

adequate assurance, thus repudiated contract

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Koch Materials Co. v. Shore Slurry Seal, Inc.

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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Test Your Knowledge

True=A, False = B Goods are to be delivered at buyer’s

place of business unless otherwise specified by contract

If goods delivered conform to the contract, the buyer must pay any expenses of inspection.

Buyer may revoke its acceptance of goods not conforming to the contract if the nonconformity substantially impairs the value of the goods

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Test Your Knowledge

Multiple Choice Jersey Steel contracted to deliver 50 M12

metric threaded rods to HomeCo each week for nine months. Four months later, Jersey Steel erected a new sign at their site with the name “United Steel.” HomeCo may: (a) Cancel the contract(b) Demand assurances of performance from

Jersey Steel (c) Stop any payments until all nine months of

deliveries have been received (d) None of the above

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Thought Question If you contracted with another party for a

long-term sale of goods contract, what kind of activities would prompt you to demand assurances of performance?

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