Learning Outcomes
After reading this article, you will be able to apply the UCC and common law rules on contract performance, breach, and discharge, with a focus on the seller’s right to cure, identification of goods, notice requirements, and allocation of risk of loss. You will be able to analyze exam questions involving nonconforming goods, delivery, and the consequences of loss or destruction before risk passes.
MBE Syllabus
For the MBE, you are required to understand the rules governing contract performance, breach, and discharge, especially as they relate to sales of goods under the UCC. This article covers:
- The perfect tender rule and the substantial performance doctrine.
- The seller’s right to cure nonconforming tenders.
- Identification of goods and its effect on risk of loss and insurable interest.
- Notice requirements for rejection, revocation, and breach.
- Allocation and transfer of risk of loss in contracts for the sale of goods.
- The impact of breach on risk of loss and available remedies.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Under the UCC, when may a seller cure a nonconforming tender?
- What is required for identification of goods to occur under a sales contract?
- When must a buyer notify the seller of rejection to preserve remedies?
- Who bears the risk of loss if identified goods are destroyed before delivery and neither party is at fault?
Introduction
Performance, breach, and discharge are central to contract law and frequently tested on the MBE, especially in the context of sales of goods under the UCC. This article addresses key performance issues beyond basic formation, including the perfect tender rule, the seller’s right to cure, identification of goods, notice requirements, and allocation of risk of loss. Understanding these concepts is essential for analyzing questions involving delivery, nonconforming goods, and loss or destruction of goods.
The Perfect Tender Rule and Substantial Performance
Under the UCC, a buyer is entitled to a perfect tender—goods and delivery must conform exactly to the contract. At common law, substantial performance is sufficient unless the contract expressly requires strict compliance.
Key Term: Perfect Tender Rule Under the UCC, the buyer may reject goods if they or the delivery fail in any respect to conform to the contract.
Key Term: Substantial Performance At common law, a party who has performed enough of the contract to fulfill its essential purpose is entitled to payment, minus damages for minor defects.
Seller’s Right to Cure
If a seller tenders nonconforming goods and the time for performance has not expired, the seller may notify the buyer of the intention to cure and then make a conforming tender within the contract period. Even after the contract time has expired, cure may be allowed if the seller reasonably believed the goods would be acceptable.
Key Term: Cure The seller’s right to correct a nonconforming tender by delivering conforming goods within the contract time or, in some cases, within a reasonable time after.
Identification of Goods
Identification is the process by which specific goods are designated as the subject of the contract. Identification is necessary for the buyer to obtain an insurable interest and for risk of loss to pass.
Key Term: Identification The designation of specific goods as those to which the contract refers, giving the buyer a special property interest.
Notice Requirements
Buyers must notify sellers of rejection of nonconforming goods within a reasonable time after delivery. Failure to give timely notice may result in acceptance of the goods and loss of remedies. Notice is also required for revocation of acceptance and for breach.
Key Term: Notice The requirement that a party inform the other of rejection, revocation, or breach within a reasonable time to preserve remedies.
Risk of Loss
Risk of loss determines which party bears the loss if goods are damaged or destroyed before the buyer receives them. The rules depend on the contract terms, the parties’ status as merchants, and whether delivery is by shipment or destination contract.
Key Term: Risk of Loss The allocation of responsibility for loss or damage to goods between seller and buyer before the buyer receives them.
Worked Example 1.1
A seller contracts to deliver 100 widgets to a buyer by July 31. On July 29, the seller delivers 100 widgets, but 10 are defective. The buyer rejects the shipment. The seller notifies the buyer on July 30 that conforming widgets will be delivered by July 31.
Answer: The seller has the right to cure because the contract time has not expired and the seller gave notice of intent to cure. If the seller delivers conforming widgets by July 31, the buyer must accept them.
Worked Example 1.2
A buyer contracts to purchase a specific painting from a gallery. Before delivery, the painting is destroyed in a fire, and risk of loss has not passed to the buyer.
Answer: The seller bears the risk of loss because the goods were identified and the risk had not yet passed to the buyer. The contract is avoided, and the buyer is not required to pay.
Worked Example 1.3
A merchant seller tenders goods to a merchant buyer. The buyer discovers a defect but fails to notify the seller of rejection for several weeks.
Answer: The buyer’s failure to give timely notice of rejection may be deemed acceptance of the goods, and the buyer may lose the right to reject or claim damages for the defect.
Exam Warning
On the MBE, be careful to distinguish between the seller’s right to cure (which is available only if the seller gives notice and acts within the contract time or has reasonable grounds to believe the goods would be accepted) and the buyer’s right to reject (which is lost if the buyer does not give timely notice).
Revision Tip
Always check whether the contract is governed by the UCC or common law. The UCC’s perfect tender rule is stricter than the substantial performance standard at common law.
Summary
- The UCC requires perfect tender but allows the seller to cure within the contract time.
- Identification of goods is necessary for risk of loss to pass and for the buyer to have an insurable interest.
- Notice of rejection or breach must be given within a reasonable time to preserve remedies.
- Risk of loss depends on contract terms, merchant status, and delivery method.
Key Point Checklist
This article has covered the following key knowledge points:
- The UCC’s perfect tender rule allows buyers to reject goods for any nonconformity.
- Sellers may cure nonconforming tenders if they act within the contract time or have reasonable grounds to believe the goods would be accepted.
- Identification of goods is required for risk of loss to pass and for the buyer to have an insurable interest.
- Buyers must give timely notice of rejection or breach to preserve remedies.
- Risk of loss rules depend on contract terms, merchant status, and delivery arrangements.
- At common law, substantial performance is sufficient unless strict compliance is required.
Key Terms and Concepts
- Perfect Tender Rule
- Substantial Performance
- Cure
- Identification
- Notice
- Risk of Loss
