1. C H A P T E R
Performance of
21
Sales Contracts
Business neglected is
business lost.
Daniel Defoe, novelist,
The Complete English
Tradesman (1726)
21-1

2. Learning Objectives
• Explain meaning of good faith,
course of dealing, and trade usage
• List basic obligations and rights of
buyer and seller for delivery of and
payment for goods
• Explain when acceptance of goods
occurs, the effect of acceptance,
and right of revocation
21-2

3. General Rules of The UCC
• UCC is flexible, but general rules apply:
– Parties must act in good faith in the
performance of a sales contract [1–203]
– If express terms of contract conflict with past
course of dealing between parties, express
terms prevail [1–205(4)]
• Grace Label, Inc. v. Kliff: court looked to the
course of dealing between the parties to
determine the contract terms, stating that the
parol evidence rule does not bar evidence of
the course of dealing between the parties
21-3

4. General Rules of The UCC
• Additional general rules:
– If express terms of contract conflict with
trade usage, express terms prevail [1–
205(4)]
– Consideration not required to support
modification of contract, but parties may
specify that writing required [2–209]
21-4

5. More General Rules
• If first party repeatedly fails to
perform as agreed and second
party fails to object, second
party may have waived rights to
cancel contract based on
inadequate performance [2–
208(3), 2–209(4)]
– Second party may retract waiver
by reasonable notice to first party
requiring strict performance [2–
209(5)]
21-5

6. Delivery Under The UCC
• Basic duty of seller is to deliver goods that
conform to contract with the buyer and
basic duty of buyer is to accept and pay for
goods if they conform to contract [2–301]
• Goods are to be delivered at seller’s place
of business unless otherwise specified by
contract
– Within reasonable hours and for a
reasonable period of time, so buyer can
take possession of goods [2–503]
21-6

7. Inspection Under The UCC
• Generally, buyer has right to inspect goods
before he accepts or pays for them
• If goods conform to contract, buyer must pay
expenses of inspection, but if goods do not
conform to contract, buyer may recover
inspection expenses from seller [2–513(2); 2–
715(1)]
21-7

8. Payment Under The UCC
• Buyer and seller may agree that price of goods is
to be paid in money or other goods, services, or
real property
• Payment may be more difficult in international
sales, thus seller often insists on receiving an
irrevocable letter of credit (diagram, page 578)
– Resolves currency issues and payment assurance
21-8

9. Acceptance & Revocation
• Buyer may revoke acceptance of nonconforming
goods where:
– Nonconformity substantially impairs value
– Buyer accepted goods without knowledge of non-
conformity (discovering nonconformity difficult)
– Buyer accepted goods because seller assured
buyer it would cure defect [2–608(1)]
– See Waddell v. L.V.R.V. Inc.: repeated attempts to
cure defects failed and buyers revoked
acceptance
• Once goods accepted, buyer obligated to pay
– Example: Weil v. Murray
21-9

10. Waddell v. L.V.R.V. Inc.
• Buyers (Waddells) sought to revoke
acceptance of recreational
vehicle
• Notwithstanding Wheeler’s good-
faith efforts to repair, Defendants
were unable to repair defects in
vehicle after seven months
• Conclusion: buyers were entitled
to revoke their acceptance
21-10

11. Weil v. Murray
• Facts:
– Weil consigned a Degas painting to Murray
for a private inspection and sale
– Weil agreed to full payment of $1 Million on
12/8, but Murray never paid; Weil sued
• Trial Court:
– Undisputed that Murray accepted the
goods, had reasonable time to inspect
goods, and even had the painting cleaned
– Summary judgment for Weil
21-11

12. Rejection Under The UCC
• If a buyer rejects a delivery of goods,
buyer must act within reasonable time
after delivery and give seller notice of
rejection, preferably in writing [2–602]
– Buyer should state all defects on which
rejection is based
– Seller may be able to cure nonconformity
– See Fitl v. Strek
21-12

13. Assurance Under The UCC
• If one party has reasonable basis for concern
that other party may not perform, concerned
party may demand assurance from the other
party that the contract will be performed
– Koch Materials Co. v. Shore Slurry Seal, Inc.
• If assurances not given within reasonable time
(< 30 days), contract repudiated [2–609]
– Repudiation may be withdrawn by clear
indication of intention to perform
• Must be before other party cancels
21-13

14. Koch Materials Co. v.
Shore Slurry Seal, Inc.
• Facts:
– Koch bought a manufacturing plant and
license rights to a product from Shore under
complex contract covering payments and
materials supply
– Owner of Shore notified Koch of impending
sale of company and Koch requested
assurance of performance, but Shore’s
response prompted Koch to file suit claiming
lack of adequate assurances equated to
repudiation of contract
21-14

15. Koch Materials Co. v.
Shore Slurry Seal, Inc.
• Legal Reasoning:
– Judge reviewed state’s UCC law
• A party with reasonable grounds for concern
may demand assurance and failure to
provide assurance is repudiation
– Applied law to facts
• Relevant agreements and lack of sale details
were reasonable grounds for concern
• Shore’s letters failed to provide Koch
adequate assurance, thus repudiated
contract
21-15

16. Assurances &
International Contracts
• Convention on Contracts for the International
Sale of Goods Art. 71: party may suspend
performance if it becomes apparent that other
party will not perform substantial part of
obligations due to: (a) a serious deficiency in
ability to perform or credit-worthiness; or (b) his
conduct in preparing to perform or in
performing the contact
– Suspending performance requires immediate
notice to other party and must continue with
performance if other party provides assurances
21-16

17. Excuse for Non-Performance
• Code rules for determining when a
party is excused from performing similar
to general contract rules
– Test of impossibility
• In most situations, however, Code uses
the test of commercial impracticability
– Performance highly impracticable,
unreasonably expensive, or little value to
promisee [UCC 2–615]
21-17

18. Test Your Knowledge
• True=A, False = B
– Goods are to be delivered at buyer’s
place of business unless otherwise
specified by contract
– If goods delivered conform to the
contract, the buyer must pay any
expenses of inspection.
– Buyer may revoke its acceptance of
goods not conforming to the contract if
the nonconformity substantially impairs
the value of the goods
21-18

19. Test Your Knowledge
• Multiple Choice
– Jersey Steel contracted to deliver 50 M12
metric threaded rods to HomeCo each week
for nine months. Four months later, Jersey
Steel erected a new sign at their site with the
name “United Steel.” HomeCo may:
a) Cancel the contract
b) Demand assurances of performance from
Jersey Steel
c) Stop any payments until all nine months of
deliveries have been received
d) None of the above
21-19

20. Thought Question
• If you contracted with another party for a
long-term sale of goods contract, such as
cement for a construction project, what
kind of activities would prompt you to
demand assurances of performance?
21-20