Summary
Two significant questions lurk in the background of any sale: (1) when does title pass? and (2) who must bear the risk of loss if the goods are destroyed or damaged through no fault of either party?
In general, title passes when the buyer and the seller agree that it passes. If the buyer and the seller fail to specify the time at which title passes, Article 2 lays down four rules: (1) under a shipment contract, title passes when the seller places the goods with the carrier; (2) under a destination contract, title passes when the goods are tendered at the place of delivery; (3) under a contract calling for delivery of documents of title, title passes when the seller tenders documents of title, even if the goods are not physically moved; and (4) when no physical delivery or exchange of documents is called for, title passes when the contract is signed.
The buyer and the seller may also specify who must bear the risk of loss. But if they do not, Article 2 sets out these four rules: (1) when the seller must ship by carrier but not to any particular destination, risk passes to the buyer when the seller delivers the goods to the carrier; (2) when the goods must be transported to a particular destination, risk passes when the carrier tenders them at that destination; (3) if the goods are held by a bailee who has issued a negotiable document of title, risk passes when the buyer receives the document; (4) in other cases, risk of loss turns on whether the seller is a merchant. If he is a merchant, risk passes when the buyer receives the goods; if he is not a merchant, risk passes when the seller tenders the goods. These rules are modified when either of the parties breaches the contract. In general, unless the breach is cured, the risk of uninsured losses lies on the party who breached.
Either party may insure the goods if it has an insurable interest in them. The buyer has an insurable interest in goods identified to the contract—for example, by marking them in some manner. The seller has an insurable interest as long as he retains title or a security interest.
In fixing passage of title and risk of loss, the parties often use shorthand terminology whose meaning must be mastered to make sense of the contract. These terms include F.O.B.; F.A.S.; ex-ship; C.I.F.; C.F.; no arrival, no sale; sale on approval; and sale or return. Use of these terms in a contract can have a significant effect on title and risk of loss.
Sometimes goods are sold by nonowners. A person with voidable title has the power to transfer title to a good-faith purchaser for value. A merchant who deals in particular goods has the power to transfer all rights of one who entrusts to him goods of the kind. And a rightful owner may be estopped by his own acts from asserting title against an innocent purchaser.
EXERCISES
Betty from Baltimore contracts to purchase one hundred purple llama figurines from Sam of Syracuse. Sam is to send the goods by carrier and is not required to deliver them to Betty’s Boutique, their destination. He ships them by train, which unfortunately crashes in Delaware. All the figurines are destroyed. Whose loss is it? Why?
In Exercise 1, assume that the train did not crash but that Sam’s creditors attempted to seize the goods before their arrival. May the creditors do so? Why?
Hattie’s Head Shop signed a written agreement with the Tangerine Computer Company to supply a Marilyn, a supercomputer with bubble memory, to total up its orders and pay its foreign agents. The contract provided that the computer was to be specially built and that Tangerine would deliver it by carrier to Hattie’s ready to install no later than June 1. Tangerine engineers worked feverishly to comply with the contract terms. On May 25, the computer stood gleaming in Tangerine’s shipping department. That night, before the trucks could depart, a tornado struck the factory and destroyed the computer intended for Hattie’s. Whose loss is it? Why?
In Exercise 3, assume that the tornado did not strike but that Tangerine’s creditors attempted to seize the computer. May they? Why?
On February 18, Clancy, who was in debt, took his stereo to Lucy’s repair shop. Because Lucy and Clancy were old friends, Lucy didn’t give him a receipt. On February 19, hounded by creditors, Clancy sold the stereo on credit to Grover, who was to pick it up on February 21 at Lucy’s, pay Lucy the repair bill, and pay the balance of the purchase price to Clancy. Who is entitled to the radio if, on February 20, Clancy’s creditor appears with the sheriff to seize the stereo from Lucy? Why?
Assume in Exercise 5 that, instead of the attempted seizure of the stereo by the creditor, Lucy’s shop and the stereo are destroyed by fire on February 20. Must Grover still pay Clancy for the stereo? Why?
Cleo’s Close-Outs, a wholesaler of discounted merchandise, offered Randy’s Retailers a chance to buy all the contents of a shipment of bathtub toys just received. Cleo estimated that she had between five hundred and six hundred rubber ducks and wrote on October 21 offering them to Randy for only one dollar each if Randy would pick them up at Cleo’s. Randy received the letter in the mail the next day and mailed his acceptance immediately. In the wee hours of the following morning, October 23, a fire consumed Cleo’s warehouse, melting the ducks into an uneven soup. Assuming that Cleo was a merchant, who bears the loss? Why?
Plaintiff, a manufacturer of men’s clothing in Los Angeles, contracted to sell a variety of clothing items to Defendant, Harrison’s clothing store in Westport, Connecticut, “F.O.B. Los Angeles.” Plaintiff delivered the goods to Trucking Company and received a bill of lading. When the goods arrived at Defendant’s store about two weeks later, Mrs. Harrison, Defendant’s wife, who was in charge of the store at the time, requested the truck driver to deliver the goods inside the door of the shop. The driver refused and ultimately drove away. The goods were lost. Defendant refused to pay for the goods and raised as a defense that “the Plaintiff refused to deliver the merchandise into the Defendant’s place of business.” Who wins and why? [1]
Jackson owned a number of guns and asked his friend Willard, who ran a country store, if Willard would let Jackson display the guns in the store for sale on consignment. Willard would get some compensation for his trouble. Willard agreed. Subsequently Willard’s creditors seized assets of the store, including the guns. Jackson protested that they were his guns, not Willard’s, and that the latter’s creditors should keep their hands off them. Given no other facts, who wins?
Plaintiff advertised his car for sale. Roberts stopped by to look at it. He took it for a short test drive, returned to Plaintiff’s house, and said, “I like it, but my wife needs to look at it before I buy it. I’ll be back in less than half an hour.” Roberts took the car and never returned. Plaintiff called the police, who later found the car in a neighboring state. Defendant had bought it from Roberts, who had presented him with forged registration papers. Plaintiff then sued Defendant to get the car back. Who wins?
SELF-TEST QUESTIONS
In a sale-on-approval contract
the goods are intended primarily for the buyer’s use
the goods are intended primarily for resale
the risk of loss is on the buyer
the buyer obtains title upon receipt of the goods
As a general rule
goods cannot be sold by persons with voidable title
a rightful owner cannot be estopped from asserting title against an innocent purchaser
a merchant cannot transfer the rights of a person who entrusts goods to him
a person with voidable title has the power to transfer title to a good-faith purchaser for value
In general, title passes
to a buyer when the contract is signed
when the buyer and the seller agree that it passes
to a buyer when the seller receives payment for goods
under none of the above conditions
When a destination contract does not specify when title is to pass, it passes
when the goods are shipped
when the contract is signed
when the buyer pays for the goods
when the seller tenders delivery
In a C.I.F. contract
the seller must obtain insurance
the buyer must obtain insurance
the seller has fewer duties than with a C.F. contract
title passes to the buyer when the seller tenders delivery
SELF-TEST ANSWERS
a
d
b
d
a
[1] Ninth Street East, Ltd. v. Harrison, 259 A.2d 772 (Conn. 1968).
Chapter 19
Performance and Remedies
LEARNING OBJECTIVES
After reading this chapter, you should understand the following:
What performance is expected of the seller in a sales contract
What performance is expected of the buyer in a sales contract
What rights and duties the buyer has if there is a nonconforming delivery
How, in general, the UCC approaches remedies
What the seller’s remedies are for breach by the buyer
What the buyer’s remedies are for breach by the seller
What excuses the UCC provides for nonperformance
In Part II, we examined contract performance and remedies under common law. In this chapter, we examine performance and remedies under Article 2, the law of sales, of the Uniform Commercial Code (UCC). In the next chapter, we cover special remedies for those damaged or injured by defective products.
The parties often set out in their contracts the details of performance. These include price terms and terms of delivery—where the goods are to be delivered, when, and how. If the parties fail to list these terms, the rules studied in this chapter will determine the parties’ obligations: the parties may agree; if they do not, the UCC rules kick in as the default. In any event, the parties have an obligation to act in good faith.
19.1 Performance by the Seller LEARNING OBJECTIVE
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. [1]
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 18 "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 tender (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.” [2]
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. [3] 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. [4]
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. [5] 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. [6]
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. [7]
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.
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