Chapter 20

Performance of Sales
and Lease Contracts

Introduction
Seller must transfer and deliver
conforming goods.
Buyer must accept and pay for
conforming goods.
In the absence of an agreement between
Seller and Buyer UCC Article 2 controls
as set out below.
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1: Good Faith Requirement

Good Faith is the foundation of every
UCC commercial contract.
Good faith means honesty in fact.
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.
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2: Sellers Obligations
Seller has a duty to tender delivery of
conforming goods.
Tender means delivery to agreed place:

With reasonable notice.

At a reasonable hour.
In a reasonable manner.
Exactly, unless otherwise agreed.
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Place of Delivery (Carriers) [1]

Shipment contracts. Seller has a duty to:

Put goods into hands of independent carrier.

Make contract for transportation.
Obtain and promptly deliver or tender to the
Buyer any documents necessary.
Promptly notify Buyer that shipment has been
made.

Place of Delivery (Carriers) [2]

Destination contracts. Seller has duty to:

Tender the goods at a reasonable hour and hold

conforming goods at the Buyers disposal for a
reasonable period of time.

Place of Delivery [Non-Carriers]

Buyer picks up at Sellers place of
business or, if Buyer has no place of
business, then Buyers residence.
If both parties know the goods are
elsewhere (at a warehouse), then place of
delivery is where the goods are.

The Perfect Tender Rule

If goods, or tender of delivery, fail in any
respect to conform to the contract, the
Buyer has the right to:

Accept the goods;

Reject the entire shipment; or
Accept part and reject part.

Exceptions to the
Perfect Tender Rule
(Click on Each Link Below)

Agreement of the Parties.

Cure.
Substitution of Carriers.
Installment contracts.
Commercial Impracticability.
Destruction of identified goods.
Partial Performance.
Then Proceed
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3: Buyers Obligations
Furnish facilities reasonably suited for
receipt of the goods.
Make payment at the time and place the
Buyer receives the goods.

Credit has to be prearranged.

Credit period begins on the date of shipment.

Pay with cash, credit card, check.

But if Seller asks for cash, Seller has to give Buyer
time to get cash.
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Buyers Obligations
Buyer has right to inspect before paying:

Costs of inspection borne by Buyer.

However, C.O.D., C.I.F. and C&F give Buyer
no right to inspect.

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Acceptance
Buyer can accept goods:

By words or conduct.
If Buyer had reasonable amount of time and
failed to reject.
Buyer performs an act which indicates he
thinks he is the owner.

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Revocation of Acceptance
Notify Seller of breach.
Revoke only if substantial
nonconformity; and

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.

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4: Anticipatory Repudiation
Party communicates he will not perform
by time of contract performance.
Non-breaching party may suspend
performance and:

Treat the A.R. as material breach and pursue a

remedy; or
Wait a reasonable time.

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5: International Contracts
and Letters of Credit
Parties.

Account: Buyer.
Issuer: Bank.
Beneficiary: Seller.
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.
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Case 20.1: Maple Farms v.

Elmira School
(Commercial Impracticability)

FACTS:
Maple Farms agreed to supply Elmira with all of the
milk the district needed for the school year. The
parties agreed to a fixed pricethe June market
price.
By December, the market price was 23 percent
higher than the contract price. Because it had
similar contracts with other school districts, Maple
Farms stood to lose a great deal of money.
Maple Farms sued to be released from the contract
on the grounds of commercially impracticable
because of the increase in the price of milk.

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Case 20.1: Maple Farms v.

Elmira School
(Commercial Impracticability)

HELD: FOR ELMIRA.

An increase in the price of milk was not
unexpected because the previous year
the price had risen 10 percent and the
price of milk had traditionally varied.
Also, general inflation should have
been anticipated. Maple Farms had
reason to know these facts and could
have contracted with the district to
protect itself.

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Case 20.2: Industria De Calcados v.

Maxwell Shoe
(Acceptance)

FACTS:
Maxwell ordered through Fingerhut 12,042 pairs

of shoes manufactured by Calcados and paid part

of the price with a check.
When the shoes arrived, they were cracked and
peeling. Maxwell stopped payment on the check
and told Fingerhut that it was rejecting the shoes.
Maxwell never told Calcados directly that it was
rejecting the goods. When Calcados did not
respond, Maxwell had the shoes refinished, sold
them, and kept the money.

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Case 20.2: Industria De Calcados v.

Maxwell Shoe
(Acceptance)

FACTS (contd)
Calcados sued Maxwell for breach of contract.

Trial Court held Maxwell had accepted the shoes

when it had them refinished, on the grounds
that an alteration or repair of a defect in goods
is an act inconsistent with the sellers
ownership under UCC 2606(1)(c).

HELD: The court awarded damages to

Calcados reduced by the amount that
Maxwell had paid for the refinishing.
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Case 20.3: Banco International v.

Goodys Family Clothing
(Anticipatory Repudiation)

FACTS:
Banco and Goodys contracted for the delivery of

windsuits (jogging suits) in three shipments, the first

shipment due by September 30 or the order would be
cancelled.
Banco sent Goodys some production samples that
had actually been produced by another manufacturer.
By August 23, Banco had not started production
despite assurances from Banco.
Goodys canceled the contract and Banco sued
alleging breach of contract. Goodys argued
anticipatory repudiation.

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Case 20.3: Banco International v.

Goodys Family Clothing
(Anticipatory Repudiation)

HELD: FOR GOODY.

Anticipatory repudiation was indicated by
Bancos failure to start performance within a
reasonable time to meet the contract deadlines
and by Bancos misrepresentations concerning
the status of its performance.
It is not necessary for [anticipatory]
repudiation that performance be made literally
and utterly impossible. Repudiation can result
from action which reasonably indicates a
rejection of the continuing obligation.

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Agreement of the Parties

Parties agree that some defective goods
will be acceptable.
Parties agree that defective goods can be
replaced or repaired within a certain
time.

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Sellers Cure
Seller has the right to Cure (ship
conforming goods to Buyer) if:

Agreed time of performance has not yet expired;

or
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.
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Substitution of Carriers
If a carrier becomes impracticable or
unavailable through no fault of either
party, a commercially reasonable
substitute is acceptable.

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Commercial Impracticability
Occurrence of an unforeseen contingency
that makes performance impracticable.
Nonoccurrence was a basic assumption
on which the contract was made.
If only partial impracticability, Seller
must allocate what he/she has.
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Installment Contracts
Installment Contracts can be
rejected if:

installment is substantially nonconforming and cant be cured.

non-conforming installment substantially
impairs the entire contract.
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Destruction of Goods
If no fault of either party and it occurs
Before risk passes to Buyer then
Both Seller and Buyer are excused from
performance.

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Partial Performance
Sometimes unforeseen event only
partially affects Sellers capacity to
perform.
In that event, Seller has duty to
reasonably allocate any remaining
production capacity to fulfilling
contractual performance.
Buyer has the right to reject.
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