Business Law 4510 Chapter 16 Notes Performance and Breach of Sales and Lease Contracts I II Performance Obligations a Basic obligation of seller transfer and deliver conforming goods b Basic obligation of buyer accept and pay for conforming goods in accordance with the contract Obligations of the Seller or Lessor a Tender of Delivery i Conforming goods goods that conform to the contract description in every way ii Tender of delivery occurs when the seller makes conforming goods available to the buyer and gives the buyer whatever notification is reasonably necessary to enable the buyer to take delivery 1 Must occur at a reasonable time and manner 2 Usually goods only tendered in a single delivery b Place of Delivery i If not specified otherwise the goods will be made available to the buyer at the seller s place of business or residence If both parties know at the time of contracting that the goods are located somewhere else then that location will be the place of delivery ii c Delivery via Carrier i Shipment Contracts 1 Requires or authorizes seller to ship goods by a carrier does not require them to deliver goods a Seller must i Place the goods into the hands of the carrier ii Make a contract for their transportation that is reasonable according to the nature of the goods and their value iii Obtain and promptly deliver or tender to the buyer any documents necessary to enable the buyer to obtain possession of the goods from the carrier iv Promptly notify buyer that shipment has been made b If the seller does not do the above requirements the buyer can reject the goods only if a material loss of the goods or a significant delay results ii Destination Contracts 1 Seller agrees to deliver conforming goods to the buyer at a particular destination a Must tender at a reasonable hour with reasonable notice b Must allow buyer reasonable time to collect goods c Must provide buyer with appropriate documents to allow them to obtain goods i Often tender documents through ordinary banking channels i If goods or tender of delivery fails in any respect to conform to the contract the buyer or lessee has the right to accept the goods reject the entire shipment or accept part and reject part d The Perfect Tender Rule e Exceptions to Perfect Tender i Agreement of the Parties ii Cure 1 The right of the seller to repair adjust or replace defective or nonconforming goods within the contract time for performance a If the contract time for performance expires seller can still cure nonconforming goods for a reasonable time as long as at the time of delivery the seller had reasonable grounds to believe that the nonconforming tender would be acceptable to the buyer 2 The buyer must give seller notice of defect if rejecting goods specific reason for rejection iii Substitution of Carriers iv Installment Contracts 1 If established delivery method becomes unavailable thought no fault of either party seller must use a commercially reasonable substitute if available 1 A single contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately a Buyer can reject an installment only if the nonconformity substantially impairs the value b of the installment and cannot be cured If buyer accepts nonconforming installment and fails to notify seller of cancellation contract is reinstated c a a a Contract breached only when one or more nonconforming installments substantially impairs the value of the whole contract v Commercial Impracticability 1 Foreseeable versus Unforeseeable Contingencies Commercial impracticability applies only to occurrences that could not have been foreseen 2 Maple Farms Inc v City School District of Elmira Issue can Maple Farms be released from the contract on the ground of commercial impracticability for the unanticipated increases in their costs b No Increased price is not a totally unexpected occurrence Maple Farms could have included a clause in the contract to protect themselves against prices increasing 3 Partial Performance If an unforeseen event partially affects the capacity of the seller they are required to allocate in a fair and reasonable manner any remaining production and deliveries among all those to whom they are contractually obligated even though the allocation may only be some of the quantity they contracted for The buyer must receive notice of the allocation and can accept or reject it 1 When an unexpected event totally destroys goods identified at the time the contract is formed through no fault of either party and before risk passes to the buyer the parties are excused from performance a If the goods are only partially destroyed the buyer can decide to void the contract or accept the goods at a reduced price vi Destruction of Identified Goods vii Assurance and Cooperation 1 The Right of Assurance a If one party has reasonable grounds determined by commercial standards to believe the other party will not perform as contracted they have the right to demand in writing adequate assurance of due performance from the other party i Until such assurance is received the party can suspend performance without ii Failure of the other party to respond may be treated as a repudiation of the liability contract 2 The Duty of Cooperation a When one party s performance depends on the cooperation of another party and the party s cooperation is not forthcoming the party can suspend her or his own performance without liability and hold the uncooperative party in breach or proceed to perform the contract in any reasonable manner III Obligations of the Buyer or Lessee a Payment i Unless stated otherwise the buyer must make payment at the time and place the goods are received If the seller demands cash they must give the buyer reasonable time to obtain it b Right of Inspection 1 i Buyer has absolute right to inspect the goods 1 This allows them to verify before making payment that the goods tendered or delivered are what were contracted for or ordered If the goods are not what were ordered the buyer has no duty to pay a An opportunity for inspection is therefore a condition precedent to the right of the seller or lessor to enforce payment b Buyer bears the costs of inspecting the goods but if the goods are rejected because they are not conforming the buyer can recover the costs of inspection from the seller c Acceptance i Assent to the delivered goods 1 2 3 If after having had a reasonable opportunity to inspect the goods the buyer signifies to the