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Table of Contents

Advanced Business Law and the Legal Environment, v. 1.0

by Don Mayer, Daniel M. Warner, George J. Siedel, and Jethro K. Lieberman

10.1 Performance by the Seller

Learning Objective

  1. Understand what is meant when it is said the seller has a duty to “make a timely delivery of conforming goods.”

The Seller’s Duty in General

The general duty of the seller is this: to make a timely delivery of conforming goods.Uniform Commercial Code, Sections 2-301and 2-309.

The CISG, Article 30, says, “The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.”

Analysis of the Seller’s Duty

Timing

By agreement or stipulation, the parties may fix the time when delivery is to be made by including statements in contracts such as “Delivery is due on or before July 8” or “The first of 12 installments is due on or before July 8.” Both statements are clear.

If the parties do not stipulate in their contract when delivery is to occur, the UCC fills the gap. Section 2-309 of the UCC says, “The time for shipment or any other action under a contract if not provided for in this Article or agreed upon shall be a reasonable time.” And what is a “reasonable time” is addressed by comment 1 to this section:

It thus turns on the criteria as to “reasonable time” and on good faith and commercial standards set forth in Sections 1-202, 1-203 and 2-103. It…depends on what constitutes acceptable commercial conduct in view of the nature, purposes and circumstances of the action to be taken.

The CISG (Article 33) provides as follows:

The seller must deliver the goods

(a) if a date is fixed by or determinable from the contract, on that date;

(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or

(c) in any other case, within a reasonable time after the conclusion of the contract.

Delivery

The parties may agree as to how delivery shall be accomplished; if they do not, the UCC fills the gap.

The CISG (Article 31) says this:

If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists

(a) if the contract of sale involves carriage of the goods—in handing the goods over to the first carrier for transmission to the buyer;

(b) if, in cases not within the preceding subparagraph…in placing the goods at the buyer’s disposal at that place [where the goods are];

(c) in other cases—in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

By Agreement

The parties may use any language they want to agree on delivery terms.

If There Is No Agreement

If the parties do not stipulate delivery terms or if their agreement is incomplete or merely formulaic, the UCC describes the seller’s obligations or gives meaning to the formulaic language. (Because form contracts are prevalent, formulaic language is customary.) You recall the discussion in Chapter 9 "Title and Risk of Loss" about when title shifts: we said title shifts when the seller has completed delivery obligations under the contract, and we ran through how those obligations are usually expressed. A quick review here is appropriate.

The contract may be either a shipment contract, a destination contract, or a contract where the goods are not to be moved (being held by a bailee). In any case, unless otherwise agreed, the delivery must be at a reasonable time and the tenderOffer of money or performance to satisfy a debt. (the offer to make delivery) must be kept open for a reasonable time; the buyer must furnish facilities “reasonably suited to the receipt of the goods.”Uniform Commercial Code, Section 2-503.

In a shipment contract, the seller has four duties: (1) to deliver the goods to a carrier; (2) to deliver the goods with a reasonable contract for their transportation; (3) to deliver them with proper documentation for the buyer; and (4) to promptly notify the buyer of the shipment (UCC, Section 2-504). The contract may set out the seller’s duties using customary abbreviations, and the UCC interprets those: “F.O.B [insert place where goods are to be shipped from]” means “free on board”—the seller must see to it that the goods are loaded on the vehicle of conveyance at the place of shipment. “F.A.S. [port of shipment inserted here]” means the seller must see to it that the goods are placed along the ship on the dock ready to be loaded (Section 2-319). Price terms include “C.I.F.,” which means the sale price includes the cost of the goods, insurance, and freight charges, and “C. & F.,” which means the sales price includes the cost of the goods at a cheaper unit price and freight but not insurance.Uniform Commercial Code, Section 2-320. If it is clear from the contract that the seller is supposed to ship the goods (i.e., the buyer is not going to the seller’s place to get them) but not clear whether it is a shipment or a destination contract, the UCC presumes it is a shipment contract.Uniform Commercial Code, Section 2-503(5).

If it is a destination contract, the seller has two duties: to get the goods to the destination at the buyer’s disposal and to provide appropriate documents of delivery.Uniform Commercial Code, Section 2-503. The contract language could be “F.O.B. [place of destination inserted here],” which obligates the seller to deliver to that specific location; “ex-ship,” which obligates the seller to unload the goods from the vehicle of transportation at the agreed location (e.g., load the goods onto the dock); or it could be “no arrival, no sale,” where the seller is not liable for failure of the goods to arrive, unless she caused it.Uniform Commercial Code, Sections 2-319, 2-322, and 2-324.

If the goods are in the possession of a bailee and are not to be moved—and the parties don’t stipulate otherwise—the UCC, Section 2-503 says delivery is accomplished when the seller gives the buyer a negotiable document of title, or if none, when the bailee acknowledges the buyer’s right to take the goods.

If nothing at all is said about delivery, the place for delivery is the seller’s place of business or his residence if he has no place of business.Uniform Commercial Code, Section 2-308.

Conforming Goods

As always, the parties may put into the contract whatever they want about the goods as delivered. If they don’t, the UCC fills the gaps.

By Agreement

The parties may agree on what “conforming goods” means. An order will specify “large grade A eggs,” and that means something in the trade. Or an order might specify “20 gross 100-count boxes No. 8 × 3/8 × 32 Phillips flathead machine screws.” That is a screw with a designated diameter, length, number of threads per inch, and with a unique, cruciform head insert to take a particular kind of driver. The buyer might, for example, agree to purchase “seconds,” which are goods with some flaw, such as clothes with seams not sewed quite straight or foodstuffs past their pull date. The parties may also agree in the contract what happens if nonconforming goods are delivered, as we’ll see later in this chapter.

If There Is No Agreement

If nothing is said in the contract about what quality of goods conform to the contract, then the UCC default rule kicks in. The seller is to make a perfect tenderThe UCC’s requirement that the seller tender exactly what was contracted for.: what is delivered must in every respect conform to the contract.Uniform Commercial Code, Section 2-601. And if what is delivered doesn’t conform to the contract, the buyer is not obligated to accept the goods.

The CISG has no perfect tender rule. Article 46 provides this:

If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

Installment Contracts

Unless otherwise agreed, all goods should be delivered at one time, and no payment is due until tender. But where circumstances permit either party to make or demand delivery in lots, Section 2-307 of the UCC permits the seller to demand payment for each lot if it is feasible to apportion the price. What if the contract calls for delivery in installment, and one installment is defective—is that a material breach of the whole contract? No. Section 2-612 of the UCC says this:

(2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.

(3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole.

Cure for Improper Delivery

Failure to make a perfect tender, unless otherwise agreed, is a material breach of the sales contract. However, before the defaulting seller is in complete default, she has a right to cure. Here’s what the UCC says in Section 2-508:

(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

Buyer orders Santa Claus candles deliverable November 5; on October 25 the goods are delivered, but they’re not right: they’re Christmas angel candles instead. But the seller still has eleven days to cure, and the buyer must allow that. Buyer places an order exactly the same as the first order, and the order arrives on November 5 in the original manufacturer’s packaging, but they’re not right. “Well,” says the seller, “I thought they’d be OK right out of the package. I’ll get the correct ones to you right away.” And the buyer would have a duty to allow that, if “right away” is a “further reasonable time.”

Article 48 of the CISG says this:

The seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention. If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.

So, again, the seller’s duty is to make a timely delivery of conforming goods. Let’s take a look now at the buyer’s duties.

Key Takeaway

The seller’s obligation under the UCC is to make a timely delivery of conforming goods. For each element of the duty—timely, delivery, conforming goods—the parties may agree in their contract. If they do not, the UCC fills in default rules.

Exercises

  1. If the parties do not specify a time for delivery, what is the UCC’s default position?
  2. What are the seller’s obligations in an F.O.B. shipment contract? In an F.O.B. destination contract?
  3. Compare the UCC’s perfect tender rule to the common-law substantial performance doctrine.