Performance: UCC Flashcards
Perfect tender rule
A seller is obligated to provide both perfect goods and perfect tender.
But if the contract at issue is for installments, the applicable standard is “substantial impairment” instead of perfect tender.
Perfect tender rule: revocation of acceptance
A buyer can revoke acceptance upon discovery of a defect within a reasonable time.
But the seller has a right to cure if:
(1) There is time left on the contract; or
(2) The seller had reasonable grounds to believe that the buyer would accept a replacement.
Methods of delivery: shipment contract
When a contract requires shipment by third-party carrier, a shipment contract is presumed unless the contract indicates otherwise—i.e., unless it specifies delivery to a particular place.
Under a shipment contract—”F.O.B. seller’s place of business—the seller must:
(1) Get the goods to a common carrier;
(2) Make arrangements for delivery; and
(3) Notify the buyer.
The buyer bears the risk of loss in a shipment contract, all else equal.
Methods of delivery: destination contract
Under a destination contract—”F.O.B. buyer’s place of business”—the seller must:
(1) Get the goods to the buyer’s business; and
(2) Notify the buyer.
The seller bears the risk of loss in a shipment contract, all else equal.
Risk of loss
The risk of loss before buyer receipt in a goods contract is determined in the following priority:
(1) The party bearing the risk under the contract;
(2) The party in breach, even if the breach is unrelated to the loss, if there is a breach;
(3) Depending on the type of shipment contract:
(a) The buyer in a shipment contract;
(b) The seller in a destination contract.
(4) Depending on whether the seller was a merchant:
(a) If so, the seller until the buyer receives the goods.
(b) If not, the buyer once the seller tenders the goods.
Installment contracts
If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can reject only if:
(1) the nonconformity substantially impairs the value of that shipment to the buyer; and
(2) the nonconformity cannot be cured.
If the seller makes adequate assurances that he can cure the nonconformity, then the buyer must accept the shipment.
Installment contracts: cancellation of the entire contract
The buyer may cancel the contract only if the nonconformity substantially impairs the value of the entire contract to the buyer.
Demanding assurances
Under the UCC, a party can demand assurances of performance:
(1) In writing;
(2) if there are reasonable grounds for insecurity about the other party’s ability or willingness to perform.
Once such assurances are requested, performance may be suspended until they are provided.
Failure to give adequate assurances within a reasonable time can be treated as a repudiation.
Acceptance of nonconforming shipment: price
A buyer’s acceptance of a nonconforming shipment obligates it to pay:
(1) the seller’s price for the accepted shipment,
(2) less any damages for losses resulting from the nonconforming shipment.
Anticipatory repudiation: retraction under the UCC
Retraction must include any assurances of performance that the other party has justifiably demanded about whether the retracting party will perform.
Risk of loss: merchant seller
A merchant seller generally retains the risk of loss, absent a contract term to the contrary, until the buyer receives the goods.
But if the buyer is in breach, the risk of loss passes to the buyer to the extent of any deficiency in the seller’s insurance coverage.
Risk of loss: non-merchant seller
The risk of loss passes to the buyer upon tender of delivery of the goods when the seller is not a merchant.
Perfect tender rule: rejected goods
Although a buyer is required to promptly notify the seller of its rejection of goods that the seller has erroneously shipped, the buyer is not required to return the goods to the seller unless the seller requests the buyer to do so.
The buyer may simply retain the goods for the seller or sell them for the seller’s account.
