UCC Article 2 - Part 2 - YouTube

Today we are continuing our look at

article 2 of the UCC by looking at

performance and breach of sales

contracts. Underlying all transactions in

the UCC is this idea of good faith, that

the parties are expected to act in good

faith, are expected to be honest and deal

fairly with each other. So that underlies

our performance requirements. So what are

the sellers obligations in a sales

contract? Well, the seller is supposed to

comply with something called the perfect

tender rule. It says that the seller

should have perfectly conforming goods

available at the agreed upon time for

the buyer. But there are some exceptions

to that. One exception is the sellers

right to cure. The seller can repair,

replace, or modify goods within a

reasonable time, so long as they give the

buyer notice of the intent to cure, and

so long as the seller can still deliver

the correct conforming goods during the

contract period. Now in some instances even

after the contract period has passed, we

will allow the seller to cure if the

seller had reasonable grounds to believe

the buyer would accept non-conforming

goods. For instance if I ordered a

thousand blue ink pens and I've done

that every year for the last three years

and for the last three years you've sent

me a thousand red ink pens and I've

accepted those instead, well you would

have reasonable grounds to believe that

I would do that again. And so in that

instance, you would have an opportunity

to cure even after the contract period

had expired. Another exception to the

perfect tender rule is commercial

impracticability. And, that comes into

play when unforeseen occurrences make

performance commercially impossible. For

instance, there's a hurricane and that

prevents you from delivering the goods

on time or prevent you from getting some

material or something that you need to

manufacture my goods. And so if there's a

commercial impracticability, like that-

that can excuse performance under the

perfect tender rule. So what are the

buyers obligations? Well, the buyer has to

pay and accept conforming goods.The

buyer does have a right of inspection

and he has to inspect within a

reasonable period of time. Of course you

know some defects may be latent, they may

not be discoverable until later, when the

product is actually used. And so what

is a reasonable time is going to

depend on part on the nature of the

defect, and how easy it is to

discover. The buyer has to accept those

conforming goods, and his acceptance is

going to be manifested in one of three

ways: either expressed in word or deed or

if if the buyers behavior or words don't

express it, it will be presumed within a

reasonable time. It will also be presumed

if the buyer acts inconsistently with

the sellers ownership. For instance by

taking the goods and selling them to

someone else. The buyer has to give the

seller notice if he's going to reject

the goods. And the buyer has to use

reasonable care while holding or

returning the goods. Okay so it can't

just leave them out in the rain so to

speak. He has to keep the goods safe and dry

in a reasonable manner. What remedies are

available if the parties breach? Ideally

our goal would be to put the parties in the

position that they would have been in

when the deal was completed. But what are

the options? What are the sellers remedies

if the buyer breaches? Well, if it's a

breach prior to delivery, the seller can

cancel the contract and withhold

delivery of the goods. The seller could

resell the goods to someone else and sue for

any deficiency. If it's unfinished goods,

like raw material or things that were

partly produced, they may be able to sell

those for scrap and sue for any loss. Or

go ahead and finish the product and then

sell it and sue for any loss. If it's

something that the seller is unable to

sell, maybe it's a unique good that

nobody else wants, then the seller could

go ahead and sue for the contract price

as well as any related incidental

damages. Throughout all this, the seller

is again expected to act in good faith.

And there is still that obligation to

mitigate damages, to try and minimize

loss. If it's a breach after delivery; so

the seller has delivered the goods, but

the buyer doesn't pay. The seller can sue

for the contract price, or if the buyer

has become insolvent the seller can go

in and reclaim the goods within 10 days.

What are the buyer's remedies if the

seller breaches? Well, if the seller refuses

to deliver the goods, the buyer can

cancel the contract. Or if it's a unique

good and he may pursue specific

performance; requiring the seller to

deliver the goods. The buyer could cancel

the contract and cover. By cover we mean

obtain the substitute goods from some

other seller. There again the buyer would

have to act

in good faith and without unreasonable

delay because we can't let those damages

pile up. And if he buys substitute goods

he could recover the difference between

the cover price and the original contract

price. It may be appropriate in some

instances for the buyer to actually

recover the goods. Maybe if he's already

paid, he could bring an action to recover

those goods and go get them from the

seller. And always, the buyer has the

right to sue for any damages. What if the

seller delivers non-conforming goods?

Then the buyer can reject those goods

and obtain cover. The buyer could

potentially revoke goods that he's

already accepted if it was a substantial

nonconformity, and the seller promised

to cure but didn't. Or the nonconformity

was difficult to discover. Or the seller

made repeated assurances that the goods

were infact conforming and they really

weren't. Moving on from performance and

breach to the idea of warranties.

There are three types of warranties that

we're going to look at warranty of title,

express warranties and implied

warranties. So the warranty of title

arises automatically, and it assures the

buyer that the seller has good title to

sell the product, that there's no liens

against the product, and that he has the

right to sell it. Express warranties are

warranties created by the sellers

representations regarding the quality,

condition, description, or performance of

the goods. And it can arise from a

promise or stated fact by the seller. It

can arise from a product

description or advertisement. If they

show you using the product in a

particular way. It can arise from a display

or sample that you see. All of those

things can create express warranties. It

can be created orally or in writing at

or after the time of the sale. So if

you're the seller you've got

to be careful what you say and how you

represent the product, so that you don't

create any unintended express warranties.

A statement of opinion and value does

not create an express warranty. Okay so

say I think this is the greatest product

in the world, that is an opinion, it does

not create an express warranty though

there can be an exception there if the

seller is in fact an expert and it would

be reasonable for you to rely on that

experts statement. Our third type of

warranty is the implied warranty-- and

there are two implied warranties that

we'll talk about. These implied

warranties are implied by law. They arise

by law from the nature of the

transaction. The first type of implied

warranty is the implied warranty of

merchantability. It arises automatically

anytime there's a sale by a merchant. So

we're treating merchants and non

merchants differently here. And it just

guarantees that the goods are

merchantable, that they're reasonably fit

for their ordinary purpose. The second

type of implied warranty is the implied

warranty of fitness for a particular

purpose-- And it arises when any seller

merchant or not, knows the particular

purpose the buyer will use the goods for and knows

the buyer is relying on his or her skill

and judgment to select suitable goods.

However, this implied warranty of fitness

for a particular purpose, does

not apply if the buyer and seller have equal

knowledge. Because in that situation you

would not rely on the other party to

select the suitable goods. So how do we

disclaim these warranties or exclude

these warranties? Because if you make a

warranty and then breach it there can be

damages that could be awarded based on

that. So, sometimes we want to exclude

these warranties. A warranty of title can

only be disclaimed by specific language in the

contract. The express warranty can be

avoided if the seller just doesn't make

any promises. It can also be avoided with

specific written language at the time of

the contract. The implied warranty of

merchantability can be disclaimed by

using the language as is or with all

faults. So you will see this sometimes on

car lots, especially used-car lots. You know

they're selling the car as is. That lets

you know that they're not

guaranteeing that this car is fit for

its ordinary purpose. Fitness for a

particular purpose warranty may also be

disclaimed specifically and in writing.

Alright so that is a look at performance

and breach of sales contracts.