CHAPTER 20

1. CHAPTER 20 Performance of Sales Contracts

2. General Rules • Good Faith = “Honesty in Fact” in performing duties assumed in a contract or in carrying out the transaction • Question 1 at end of chapter • No. The court held that Ratzlaff had not acted in good faith in the way he terminated the contract. Both parties to a contract have a duty to act in good faith in performing and enforcing a contract. Ratzlaff never asked Baker for the payment, either when he delivered the popcorn or in their later telephone conversations. He never gave Baker any idea that he was concerned about payment until he terminated the contract. In addition, Ratzlaff’s quick resale of the popcorn at almost double the price he had agreed to sell it to Baker cast doubt on his good faith. Baker v. Ratzlaff, 564 P.2d 153 (Ct. App. Kan. 1977).

3. General Rules • Course of Dealing = past behavior between parties • Relevant in interpreting the meaning of ambiguous terms in a contract • Usage of Trade- Customs/Practices • Relevant in interpreting the meaning of ambiguous terms in a contract

4. General Rules • Usage of Trade- Customs/Practices • Weisz Graphics Division of the Fred B. Johnson Co., Inc. v. Peck Industries, Inc., p.345 • Even though the buyer’s purchase orders did not contain a release deadline, a limitation of 12 months on such releases was incorporated into the contract through usage of trade and course of dealing. Such a 12 month release limitation was standard in the industry and the prior course of dealing between the buyer and the seller had been for the seller to ship within 12 months.

5. General Rules • Waiver - Failure to object to ongoing modifications in performance may constitute • May retract with reasonable notice • Assignment • Duties under a contract are generally assignable unless otherwise specified or of a special sort (e.g. personal services)

6. Delivery • Basic Obligations • Seller: Deliver • Buyer: Accept and Pay • Place • Where agreed • Default: Seller’s Place of Business • If none, Home

7. Delivery • Seller’s Duty • Tender of Delivery = Make goods available to buyer in a reasonable manner • If Shipping, Seller Must Make Reasonable Contract with Carrier and Notify Buyer • Example: When goods are sold on an F.O.B. basis, the seller in the absence of instructions from the buyer is responsible for using reasonable care and judgement in making shipping arrangements. The failure to use floor racks was a breach of this duty to use reasonable care in making shipping arrangements. Therefore, the seller is in breach and is liable for the damages sustained. Spada Distributing Co. v. Belson, 26 A.D. 88 (1967) (United States Dept. of Agriculture).

8. Buyer’s Rights on Delivery- Inspection • Normally, Buyer has right to inspect prior to acceptance • Exception: Cash on Delivery (C.O.D) • If obvious impairment, may reject without paying • Question 2 at end of chapter. • Yes. Under 2-513, the buyer has the right to inspect the goods before payment or acceptance. Therefore, the seller is not entitled to recover the price of the undelivered cars because the buyer was not accorded this opportunity. Ledford v. Cowan, 496 So.2d 64 (Ct. Civ. Ala. 1986). • Question 4 at end of chapter. • No. The court held that Mrs. Farkas had not accepted the violin on Saturday. Two days was a reasonable time for the violin to be taken to the music teacher and for it to be inspected. As soon as the crack was discovered during the inspection, the seller was notified that the buyer did not desire to continue possession. Shelton v. Farkas, 635 P.2d 1109 (Ct. App. Wash. 1981). • Payment • Generally, on delivery, by any reasonable manner unless otherwise specified

9. Buyer’s Rights on Delivery- Inspection • Acceptance- Cannot Reject Later • Commercial Unit = Whole Unit • Accept any part = accept whole • Weil v. Murray, p.349 • Where a prospective buyer maintained possession of a painting for almost five months, had ample time to inspect it, and permitted the painting to be cleaned and altered, the buyer was considered to have accepted the painting, having had more than a reasonable opportunity to inspect it, failed to indicate he was rejecting it or to return it, and committed acts inconsistent with the seller’s ownership of the painting. • Effect, normally can’t reject later • Must give timely notice of non-conformity • Question 6 at end of chapter • Yes. The court held that where four days after the buyer acquired the vehicle, he discovered that the mileage on the vehicle was incorrect and sought to return it to the dealer in exchange for the money he had paid, the buyer had timely exercised his right to revoke acceptance of the vehicle. Cuesta v. Classic Wheels, Inc., 818 A.2d 448 (Super. Ct. N.J. 2003).

10. Buyer’s Rights on Delivery- Inspection • Revocation- Before Substantial Change, where: • Substantially Impairs Value • Accepted Without Knowledge of Non-Conformity, or on assurances • Effective When Buyer Notifies Seller of Intent • North River Homes, Inc. v. Bosarge, p.349 • Where the defects in a mobile home constituted a substantial impairment of the value of the home, the seller did not have an unlimited time to remedy them and the buyer was justified in revoking his acceptance. • Question 5 at end of chapter • No. The court held that as conditions precedent to revocation of acceptance, it must first be shown (10 that the goods are nonconforming, and (2) that such nonconformity substantially impairs the failure of the goods to the buyer. A substantial impairment means more than a minor defect that is easily repairable. Here, there is ample support for the court to conclude that at the time of the buyer’s attempted revocation, the pickup truck was not substantially impaired. specifically, the manufacturer’s employee was unable to find the purported defect despite over 30 tests of the vehicle. Ramos v. Ford Motor Co., 655 N.W.2d 447 (Sup. Ct. S.D. 2002).

11. Buyer’s Rights on Delivery- Non-Conforming • Question 3 at end of chapter. • .No. Under the UCC a buyer is permitted to return any nonconforming goods to a seller. Where the goods fail to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit or units and reject the remainder. Rejection must be within a reasonable time and requires that the seller be reasonably notified of the rejection, that the buyer not exercise ownership of the goods, and that the buyer hold the goods with reasonable care to give the seller an opportunity to remove them. Here, it is reasonable to conclude that only some of the goods were un-merchantable because some were resold to another retailer and others sold to customers without apparent complaint. Starr also had not received complaints from other purchasers from the same shipment Ford claimed was un-merchantable. Ford’s placement of the merchandise in inventory and later resale of some goods were inconsistent with a claim he had rejected them. He also did not avail himself of several opportunities to return the fireworks to Starr’s representatives—and when he did return some, it was only 10 cases. His purported return of the balance of the fireworks, leaving them unattended outside an urban business location was clearly unreasonable. In sum, Ford’s exercise of ownership over some of the goods and his subsequent failure to exercise reasonable care in returning them lead to his being considered to have accepted them and, in turn, his liability for paying for them. Ford v. Starr Fireworks, Inc., 874 P.2d 230 (Sup. Ct. Wyo. 1994)

12. Buyer’s Rights on Delivery- Non-Conforming • Example: If a buyer treats a shipment of goods as if he or she owns them, the UCC regards those actions as acceptance of the shipment by the buyer. Maxwell Shoe initially rejected the goods, but when it subsequently shipped the shoes to another company to be refinished, it acted in a manner contrary to its assertion that it rejected the goods. The court stated that altering or repairing defects is inconsistent with the seller’s ownership of the goods. Therefore, Maxwell Shoe accepted the shipment of shoes from Martinia Industries and Martinia Industries was entitled to the value of the shoes. Industria de Calcados Martinia Ltda. V. Maxwell Shoe Co., 630 N.E.2d 299 (Mass. Ct. App. 1994)

13. Buyer’s Rights on Delivery- Non-Conforming • Example: In ascertaining whether a buyer’s continued used of an item after revocation of its acceptance was reasonable, the critical questions are: (1) On being apprised of the buyer’s revocation of her acceptance, what instructions, if any, did the seller tender the buyer concerning return of the now rejected goods? (2) Did the buyer’s business needs or personal circumstances compel the continued use? (3) During the period of such use, did the seller persist in assuring the buyer that all non-conformities would be cured or that provisions would otherwise be made to recompense the latter for the dissatisfaction and inconvenience that the defects caused him? (4) Did the seller act in good faith? (5) Was the seller unduly prejudiced by the buyer’s continued use? Here, the seller did not respond to McCullough’s request for instructions. As a young secretary with limited financial resources, she was not in a position to return the automobile and obtain a second one while remaining liable for repaying the loan on the first car. By attempting to repair the vehicle even after she gave notice of revocation, the dealer provided express and tacit assurances that the defects were remediable, thus inducing her to retain possession. And, finally, the seller was not prejudiced by McCullough’s continued operation of the vehicle. Swad did not reassume ownership of it when requested and thus had to bear the loss for any diminution in resale value. McCullough v. Bill Swad Chrysler-Plymouth, Inc., 449 N.E.2d 1289 (Sup. Ct. Ohio 1983).

14. Buyer’s Rights on Delivery- Non-Conforming • Nonconforming Options” • reject all • accept all • accept commercial units, reject rest • Not accept part, reject part • If installments: • Can reject if substantially affects value and cannot be cured by seller • Rejection- Pay For Accepted Units • Act within a reasonable time • Notify Seller • Specify Defect(s) • Right to Cure • Where seller reasonable belief buyer would accept (e.g. based on prior course of dealing)

15. Buyer’s Duties Upon Rejection • Follow reasonable instructions • Store non-perishables, or • Question 7 at end of chapter. • No. The court held that Fekkos had met his duty to use reasonable care to protect the tractor after he had rightfully rejected it and pending an opportunity for the seller to remove it. It found his actions reasonable under the circumstances present at his home and noted that Lykins’ employees were made aware of where the tractor had been parked. So long as the buyer exercises reasonable care, the risk of loss concerning rejected goods remains on the seller. Lykins Oil Co. v. Fekkos, 507 N.E.2d 795 (Ct. Comm. Pl. Ohio 1986). • Reship, or • Resell • If resell, do in good faith • Question 8 at end of chapter. • Traynor had acted exactly as he should have when he received the shipment of trees that did not conform to the contract. Traynor inspected them, gave prompt notice of rejection to the seller, awaited the seller’s instructions, and then acted to prevent further loss to perishable goods by selling them. Traynor was entitled to recover his expenses of caring for and selling the trees, including rental of a lot and wages for a night watchman and a salesman. Traynor v. Walters, 342 F.Supp. 455 (M.D. Pa. 1972).

16. Buyer/Seller May: • If reasonable basis to suspect non-performance may request assurances • If not given, may repudiate • LNS Investment Co., Inc. v. Phillips 66 Co., p. 353 • Where the purchasers of a large quantity of plastic bottles had reasonable grounds for insecurity concerning the performance of the seller, the purchaser was justified in requesting assurances that the seller would perform its obligations under the contract and also justified in suspending its performance of the contract when adequate assurances were not forthcoming. • Question 9 at end of chapter • The court held that Creusot-Loire’s request for assurance was reasonable under the circumstances. Coppus was obligated to provide burners which would operate under certain conditions and Creusot-Loire was justified in seeking assurances that the burners would be able to meet the Yugoslavian operating conditions. Coppus’s failure to provide any assurances, except for the bare statement that the burners would work if installed, constituted a repudiation of the contract. Creusot-Loire International, Inc. v. Coppus Engineering Corp., 535 F. Supp. 45 (S.D. N.Y. 1983).