Quiz 17: Performance and Breach of Sales and Lease Contracts


Every contract relies upon the obligations of good faith and commercial reasonableness. The obligations of the parties- buyer and seller-under a contract for the sale or lease of goods are as below. Obligations of the Seller or Lessor The basic obligation of the seller is to transfer and deliver conforming goods to the buyer. He must give any notice that is reasonably necessary to enable the buyer or lessee to accept the delivery. a) Tender of Delivery: The goods must be delivered at a reasonable hour, in a reasonable manner. Further, the goods must be kept available for a reasonable time. b) Place of Delivery: The contract or the circumstances may indicate the place of delivery, or parties may agree on a particular destination. c) Perfect Tender Rule : The perfect tender rule sates that the seller was obligated to deliver the goods within stipulated time according to the terms of the contract. Any failure to conform to the contract may result in complete or partial rejection of the shipment. Obligations of the Buyer or Lessee The basic obligation of the buyer is to accept the conforming goods, and make the payment for the same and deliver conforming goods to the buyer. He must give any notice that is reasonably necessary to enable the buyer or lessee to accept the delivery. a) Payment: The buyer is required to pay for the conforming goods by any means as agreed upon by the parties. b) Right of Inspection: Before accepting the delivery, the buyer has the right to inspect if the goods are what contracted for. The buyer can reject the delivery if goods are not the same as stated in the contract. c) Acceptance: Given the reasonable opportunity to inspect, if the buyer fails to reject the goods within reasonable time, the delivery is assumed to be accepted.

Company L repudiates the contract with Company GI. The delivery was due on December 1, while repudiation occurs on November 1. That is, the machines are in the possession of GI. GI can pursue following remedies. a) Cancel the contract: GI can cancel the contract and notify company L about the same. At this point, all the obligations of GI would discharge. b) Withhold delivery: GI can withhold the delivery of machines and discontinue the performance of their obligations under the contract. c) Resell or dispose of the goods: GI can resell the goods and can retain the profits so earned. GI may also hold company L responsible for any loss incurred. However, GI must give reasonable notice to company L regarding resale in case of perishable goods. d) Recover the purchase price or lease payment due: If GI cannot resell the goods, it can sue company L for contract purchase price or lease payment due. e) Recover damages: GI can recover the damages caused due to breach of the contract. The damages can be the loss of profits including some overhead expenses.

(a) img , the seller has a legitimate reason to expect that the fourth shipment would be accepted. Since the seller meets the obligation to tender conforming fourth shipment of goods, the buyer is obligated to accept and pay for the goods. (b)If the seller fails to notify the buyer about any change in the shipment contract, and such a change causes a significant delay in delivery or major material loss, the buyer has all rights to reject the shipment. img , the substitution of carriers in the third shipment without any notification to the buyer does constitute a breach of the contract as such substitution resulted in destruction of the goods shipped. Had the seller notified the buyer about substituting carrier, the contract would not be said to be breached. (c)The court may release the seller from further performance under the doctrine commercial impracticability. Due to unavailability of raw material, the seller was able to fulfil the contract only partially. Once the goods are delivered to whom they were contractually obligated, the seller is released from further performance. (d) img , the buyer does not have the right to reject the fourth shipment. In case of installment contracts, a buyer can reject an installment only if the nonconformity substantially impairs the value of the shipment which cannot be cured. The seller delivered the goods same as first and second shipment that conforms to the contract. Moreover, the buyer did not notify the seller of any such rejection. Thus, the buyer has no right to reject the shipment.

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