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Chapter 15:

Performance of Sales and Lease Contracts

OBJECTIVES:

1. Describe the doctrines of good faith and reasonableness that govern the performance of sales and lease contracts.

2. Define the perfect tender rule.

3. Identify when the buyer or lessee has a right to reject nonconforming goods.

4. Identify when the seller or lessor has a right to cure a nonconforming delivery of goods.

5. Identify when the buyer or lessee has the right to revoke a prior acceptance.

6. List and describe the seller's remedies for buyer's breach of the sales contract.

7. List and describe the lessor's remedies for the lessee's breach of the lease contract

9. List and describe the lessee's remedies for the lessor's breach of the lease contract.

10. Identify limitations on remedies.

 

A. SELLER'S AND LESSOR'S OBLIGATIONS

1. Place of Delivery

a. non carrier cases

b. carrier cases

shipment contracts

destination contracts

 

2. Perfect Tender Rule

 

a. exceptions to the Perfect Tender Rule

 

agreement of parties

substitution of carriers

cure

 

Joc Oil USA, Inc. v. Consolidated Edison Co. of New York, Inc., 30 UCC Rep. Serv. 426 (Sup. Ct. NY, 1980).

FACTS: Joc Oil had a contract to sell oil to Con Ed. The oil delivered did not meet the contract specifications. Joc Oil offered to lower the price of the oil and then offered to replace it with conforming oil. Con Ed rejected the offer and Joc Oil sued.

 

ISSUE: Can Joc Oil cure the non-conformity?

 

HOLDING: Yes

 

REASONING: A seller has a right to cure under the UCC. After the seller reasonably believes that the buyer will accept the tender, the seller can give reasonable notice of its intent to cure, and can provide a conforming tender within a reasonable time. Based upon Joc Oil's knowledge of the purported quality of the oil tendered and upon Con Ed's usage pattern at the time, Joc Oil could reasonable believe Con Ed would accept the delivery. Second, Joc Oil gave reasonable notice of its intent to cure. And finally, Joc Oil has a shipment available that would be delivered in one week. Therefore, since all the criteria were met, Joc Oil may cure, and Con Ed was in breach for rejecting the offer to cure.

 

installment contracts

destruction of goods

 

B. BUYER'S AND LESSEE'S OBLIGATIONS

 

1. Right of Inspection

 

2. Payment

 

3. Acceptance

 

4. Revocation of Acceptance

 

Fortin v. Ox-Bow Marina, Inc., 557 N.E. 2d 1157 (Mass., 1990).

FACTS: The Fortins, owners of a 21 foot Larson powerboat, were interested in trading up to a larger vessel that they could use off Cape Cod. At a Springfield boat show they purchased from Ox-Bow the Bayliner Conquest after agreeing on a trade in allowance for their Larson, and after having been assured of delivery in time for the boating season and of repair service in the Cape Cod area. The new boat was delivered to the Ox-Bow marina on April 23, 1985. Much preparation work was needed in order for the boat to be ready for use, including installation of the cabin top and pulpit, installation of special equipment and optional items, and electrical work. Furthermore, the boat arrived with ill-fitting engine latches, marred gel coat in the cockpit, a missing bow eve, and numerous scrapes on the hull near the water line. The Fortins inspected the boat on May 8, 1985, and called to Ox-Bow's attention a number of defects which they had observed. The Ox-Bow sales representative assured them that all the defects would be cured by the time of closing on the boat, set for May 21. One the day of the closing, which took place on Ox-Bow's premises, the Fortins checked their boat and noticed that none of the preparation work had been started on the Bayliner. They expressed reluctance to close on the boat until it was operational, but Ox-Bow's representative at the closing assured them that not only would the boat be completely ready shortly, but that, it the Fortins did not close on that day, Ox-Bow would charge them interest and storage fees until the transaction was completed. The Fortins went ahead with the closing. By October 1985, several, but not all of the defects had been repaired, and the Fortins had not been able to use their boat all summer. On October 31, 1985, the Fortins, through counsel, notified Ox-Bow in writing that they were revoking their acceptance of the Bayliner, and seeking a refund of their purchase price in addition to reimbursement for expenses incurred as a result of their problems with the boat that summer.

 

ISSUE: Was the Fortin's revocation of acceptance effective?

 

HOLDING: Yes

 

REASONING: A buyer may subsequently revoke his or her acceptance of goods if the buyer can show that the non-conformity in the goods substantially impairs its value and that the buyer accepted the goods on the reasonable assumption that the non-conformity would be cured and it has not been seasonable cured. The court ruled that this was the situation in this case. The Fortins accepted the Bayliner on Ox-Bow's assurances that the defect would be cured. The Fortins had the legal right to revoke their acceptance because the defects were not cured and substantially impaired the value of the boat to them.

 

C. ASSURANCE OF PERFORMANCE

1. If one party to a sales or lease contract has reasonable grounds to believe the other party cannot or will not perform his or her contractual obligations, they may demand in writing an adequate assurance of performance from the other party. And they may suspend their own performance until such adequate assurance is received.

 

 

D. ANTICIPATORY REPUDIATION

 

E. SELLER'S AND LESSOR'S REMEDIES

1. Right to Withhold Delivery

 

2. Right to Stop Delivery of Goods in Transit

 

3. Right to Reclaim Goods

 

4. Right to Dispose of Goods

 

5. Right to Recover the Purchase Price or Rent

 

6. Right to Recover Damages for Breach of Contract

 

7. Right to Cancel the Contract

 

F. BUYER'S AND LESSEE'S REMEDIES

1. Right to Reject Nonconforming Goods or Improperly

Tendered Goods

 

2. Right to Recover Goods from an Insolvent Seller or

Lessor

 

3. Right to Obtain Specific Performance

 

4. Right to Cover

 

Red River Commodities, Inc. v. Eidsness, 459 N.W. 2d 811 (ND, 1990).

FACTS: While wintering in Arizona in early 1988, North Dakota framer George Eidsness agreed by telephone to grow and to sell 350,000 pounds of confection sunflowers to RRC at a floor price of 11.25 cents per pound. In George's absence, one of his sons signed "Confection Sunflower Production" contracts for George. Contract No. 217, signed February 15, 1988, was for 200,000 pounds, and Contract No. 224, signed March 4, 1988, was for 150,000 pounds. Later in the spring, George obtained sunflower seed form RRC for planting as the contracts stipulated: "The grower agrees to purchase his seed requirements from RRC or its designated contracting representatives."

In June, George discovered one field of sunflowers was severely weed infested. At George's request, a representative of RRC inspected the field on June 11, confirmed that George could destroy 121 acres, and prepared a handwritten letter to RRC for George's signature. George did not deliver any sunflowers to RRC from his 1988 crop. In mid-December 1988, RRC learned that George was selling sunflowers to a competitor at 22 cents per pound. RRC promptly sued George for anticipatory breach and also wrote George urging him to perform his contracts. George failed to deliver any sunflowers to RRC.

The trial court found that George had not signed contracts 217 and 224, that "he did receive the benefits of same" without rejecting to them, and that George produced sufficient sunflowers to meet his contracts with RRC "but instead sold the product to a competitor." After adjusting contracted amounts proportionately for the destroyed 121 acres, the trial court held that George "was obligated to deliver 229,000 pounds" and "failed to deliver any product whatsoever." Finding that RRC purchased replacements, the trial court held that George was liable to RRC for the difference between the cost of cover at 26 cents per pound and the contract price of 11.25 cents per pound. The trial court awarded damages of $33,776.50 to RRC based on 14.75 cents for each of 229,000 undelivered.

 

ISSUE: Can RRC recover as damages the difference between the cost of cover and the original price?

 

HOLDING: Yes

 

REASONING: After a breach within Section 41-02-90 of the UCC, a buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. The buyer may recover form the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined but less expenses saved in consequence of the seller's breach.

 

5. Right to Replevy Goods

 

6. Right to Cancel the Contract

 

7. Right to Recover Damages for Non delivery or Repudiation

 

8. Right to Recover Damages for Accepted Non Conforming Goods

 

G. STATUTE OF LIMITATIONS

1. four years

2. by agreement to one year, but not more than four years

 

H. AGREEMENTS AFFECTING REMEDIES

1. Parties can agree to remedies in addition to or in

substitution of the UCC remedies

 

2. But if agreed substituted remedy fails in its essential

purpose, i.e., repair is the substituted remedy, but no repair parts are available, then UCC remedies would be available.

3. Consequential damages can be limited, unless the limit would be unconscionable. With respect to a consumer, a limitation of consequential damages for personal injuries are per se unconscionable. But no so for commercial losses.

 

4. Liquidated damages are okay, so long as the are reasonable in light of anticipated or actual damages in light of the breach, the difficulty of proof of loss, and the inconvenience or on-feasibility of otherwise obtaining an adequate remedy.